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Author

Kenneth J. Arrow

Bio: Kenneth J. Arrow is an academic researcher from Stanford University. The author has contributed to research in topic(s): Social choice theory & General equilibrium theory. The author has an hindex of 113, co-authored 411 publication(s) receiving 111221 citation(s). Previous affiliations of Kenneth J. Arrow include University of California & Princeton University.


Papers
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Book
01 Jan 1951
Abstract: Originally published in 1951, Social Choice and Individual Values introduced "Arrow's Impossibility Theorem" and founded the field of social choice theory in economics and political science. This new edition, including a new foreword by Nobel laureate Eric Maskin, reintroduces Arrow's seminal book to a new generation of students and researchers. "Far beyond a classic, this small book unleashed the ongoing explosion of interest in social choice and voting theory. A half-century later, the book remains full of profound insight: its central message, 'Arrow's Theorem,' has changed the way we think."-Donald G. Saari, author of Decisions and Elections: Explaining the Unexpected

8,217 citations

Book ChapterDOI
Abstract: Invention is here interpreted broadly as the production of knowledge. From the viewpoint of welfare economics, the determination of optimal resource allocation for invention will depend on the technological characteristics of the invention process and the nature of the market for knowledge.

7,490 citations

Book ChapterDOI
Abstract: It is by now incontrovertible that increases in per capita income cannot be explained simply by increases in the capital-labor ratio. Though doubtless no economist would ever have denied the role of technological change in economic growth, its overwhelming importance relative to capital formation has perhaps only been fully realized with the important empirical studies of Abramovitz [1] and Solow [l 1]. These results do not directly contradict the neo-classical view of the production function as an expression of technological knowledge. All that has to be added is the obvious fact that knowledge is growing in time. Nevertheless a view of economic growth that depends so heavily on an exogenous variable, let alone one so difficult to measure as the quantity of knowledge, is hardly intellectually satisfactory. From a quantitative, empirical point of view, we are left with time as an explanatory variable. Now trend projections, however necessary they may be in practice, are basically a confession of ignorance, and, what is worse from a practical viewpoint, are not policy variables.

6,824 citations

Posted Content
Abstract: Invention is here interpreted broadly as the production of knowledge. From the viewpoint of welfare economics, the determination of optimal resource allocation for invention will depend on the technological characteristics of the invention process and the nature of the market for knowledge.

5,621 citations

Journal ArticleDOI

5,250 citations


Cited by
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Journal ArticleDOI
Abstract: In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.

45,832 citations

Book ChapterDOI
Abstract: This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses. In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms. An alternative theory of choice is developed, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights. The value function is normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains. Decision weights are generally lower than the corresponding probabilities, except in the range of low prob- abilities. Overweighting of low probabilities may contribute to the attractiveness of both insurance and gambling. EXPECTED UTILITY THEORY has dominated the analysis of decision making under risk. It has been generally accepted as a normative model of rational choice (24), and widely applied as a descriptive model of economic behavior, e.g. (15, 4). Thus, it is assumed that all reasonable people would wish to obey the axioms of the theory (47, 36), and that most people actually do, most of the time. The present paper describes several classes of choice problems in which preferences systematically violate the axioms of expected utility theory. In the light of these observations we argue that utility theory, as it is commonly interpreted and applied, is not an adequate descriptive model and we propose an alternative account of choice under risk. 2. CRITIQUE

34,961 citations

Journal ArticleDOI
Abstract: In this paper, we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm's absorptive capacity and suggest that it is largely a function of the firm's level of prior related knowledge. The discussion focuses first on the cognitive basis for an individual's absorptive capacity including, in particular, prior related knowledge and diversity of background. We then characterize the factors that influence absorptive capacity at the organizational level, how an organization's absorptive capacity differs from that of its individual members, and the role of diversity of expertise within an organization. We argue that the development of absorptive capacity, and, in turn, innovative performance are history- or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area. We formulate a model of firm investment in research and development (R&D), in which R&D contributes to a firm's absorptive capacity, and test predictions relating a firm's investment in R&D to the knowledge underlying technical change within an industry. Discussion focuses on the implications of absorptive capacity for the analysis of other related innovative activities, including basic research, the adoption and diffusion of innovations, and decisions to participate in cooperative R&D ventures. **

29,672 citations

Journal ArticleDOI
Abstract: The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.

25,469 citations

Journal ArticleDOI
TL;DR: A nonlinear (nonconvex) programming model provides a new definition of efficiency for use in evaluating activities of not-for-profit entities participating in public programs and methods for objectively determining weights by reference to the observational data for the multiple outputs and multiple inputs that characterize such programs.
Abstract: A nonlinear (nonconvex) programming model provides a new definition of efficiency for use in evaluating activities of not-for-profit entities participating in public programs. A scalar measure of the efficiency of each participating unit is thereby provided, along with methods for objectively determining weights by reference to the observational data for the multiple outputs and multiple inputs that characterize such programs. Equivalences are established to ordinary linear programming models for effecting computations. The duals to these linear programming models provide a new way for estimating extremal relations from observational data. Connections between engineering and economic approaches to efficiency are delineated along with new interpretations and ways of using them in evaluating and controlling managerial behavior in public programs.

22,924 citations