Showing papers by "Kenneth J. Arrow published in 2009"

Looming Global-Scale Failures and Missing Institutions

Abstract: Energy, food, and water crises; climate disruption; declining fisheries; increasing ocean acidification; emerging diseases; and increasing antibiotic resistance are examples of serious, intertwined global-scale challenges spawned by the accelerating scale of human activity. They are outpacing the development of institutions to deal with them and their many interactive effects. The core of the problem is inducing cooperation in situations where individuals and nations will collectively gain if all cooperate, but each faces the temptation to take a free ride on the cooperation of others. The nation-state achieves cooperation by the exercise of sovereign power within its boundaries. The difficulty to date is that transnational institutions provide, at best, only partial solutions, and implementation of even these solutions can be undermined by internation competition and recalcitrance.

Conspicuous Consumption, Inconspicuous Leisure*

Abstract: It is commonly argued that because relative consumption appears to matter to people, they must be involved in a ‘rat race’: people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one's relative consumption now, it would worsen one's relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects.

Toward a 21st-century health care system: Recommendations for health care reform

Abstract: The coverage, cost, and quality problems of the U.S. health care system are evident. Sustainable health care reform must go beyond financing expanded access to care to substantially changing the organization and delivery of care. The FRESH-Thinking Project (www.fresh-thinking.org) held a series of workshops during which physicians, health policy experts, health insurance executives, business leaders, hospital administrators, economists, and others who represent diverse perspectives came together. This group agreed that the following 8 recommendations are fundamental to successful reform: 1. Replace the current fee-for-service payment system with a payment system that encourages and rewards innovation in the efficient delivery of quality care. The new payment system should invest in the development of outcome measures to guide payment. 2. Establish a securely funded, independent agency to sponsor and evaluate research on the comparative effectiveness of drugs, devices, and other medical interventions. 3. Simplify and rationalize federal and state laws and regulations to facilitate organizational innovation, support care coordination, and streamline financial and administrative functions. 4. Develop a health information technology infrastructure with national standards of interoperability to promote data exchange. 5. Create a national health database with the participation of all payers, delivery systems, and others who own health care data. Agree on methods to make de-identified information from this database on clinical interventions, patient outcomes, and costs available to researchers. 6. Identify revenue sources, including a cap on the tax exclusion of employer-based health insurance, to subsidize health care coverage with the goal of insuring all Americans. 7. Create state or regional insurance exchanges to pool risk, so that Americans without access to employer-based or other group insurance could obtain a standard benefits package through these exchanges. Employers should also be allowed to participate in these exchanges for their employees' coverage. 8. Create a health coverage board with broad stakeholder representation to determine and periodically update the affordable standard benefit package available through state or regional insurance exchanges.

Some Developments in Economic Theory Since 1940: An Eyewitness Account

Abstract: Any psychologist who has studied eyewitness accounts knows first of all how unreliable they are. I therefore submit this informal account of some developments in economic theory without research, just as a set of recollections. It is also not an autobiography, nor a systematic account of my own work. Rather, I consider primarily those developments in economic theory that have had both general interest in the field and special concern for me. For example, as social choice theory is still a specialized field, I am not going to discuss it at all. Further, as it has turned out, I emphasize the developments of technique, although to some extent I refer to some of the underlying visions of the economy to which they are applied. To evaluate my eyewitness testimony, I give the reader some idea of my background and, in particular, the path that led me to be an economist and that has influenced my work and my perception of the development of economics in general. (As my friend Paul David keeps on reminding me and t...

A Statement on the Appropriate Role for Research and Development in Climate Policy

Abstract: A statement by a group of economists and scientists which met at Stanford University on October 18, 2008 to discuss the role of research and development in developing effective policies for addressing the adverse potential consequences of climate change.

A note on uncertainty and discounting in models of economic growth

Abstract: The implications of uncertainty for appropriate discounting in models of economic growth have been studied at some length, notably, (Review of Economic Studies, 36:153–163; 1969) and (Journal of Public Economics, 85:149–166; 2002). A detailed account has now appeared in Journal of Risk and Uncertainty, 37:141–169; 2008, sections 4 and 5 (pp. 160–166). One interesting, if perhaps minor, aspect is that under certain circumstances, there appeared to be no solution or at least no satisfactory one. More importantly, the formulas are usually given for the log normal case and are somewhat complicated and hard to interpret intuitively. I show here that assuming a general distribution for returns to capital gives simpler and more understandable results.

Intergenerational resource transfers with random offspring numbers.

Abstract: A problem common to biology and economics is the transfer of resources from parents to children. We consider the issue under the assumption that the number of offspring is unknown and can be represented as a random variable. There are 3 basic assumptions. The first assumption is that a given body of resources can be divided into consumption (yielding satisfaction) and transfer to children. The second assumption is that the parents' welfare includes a concern for the welfare of their children; this is recursive in the sense that the children's welfares include concern for their children and so forth. However, the welfare of a child from a given consumption is counted somewhat differently (generally less) than that of the parent (the welfare of a child is “discounted”). The third assumption is that resources transferred may grow (or decline). In economic language, investment, including that in education or nutrition, is productive. Under suitable restrictions, precise formulas for the resulting allocation of resources are found, demonstrating that, depending on the shape of the utility curve, uncertainty regarding the number of offspring may or may not favor increased consumption. The results imply that wealth (stock of resources) will ultimately have a log-normal distribution.

Comments of 71 Concerned Economists: Using Procurement Auctions to Allocate Broadband Stimulus Grants

Abstract: The signatories to this document are economists who have studied telecommunications, auctions, and competition policy While we may disagree about the stimulus package, we believe that it is important to implement mechanisms that make stimulus spending as efficient as possible To that end, we have come together to encourage the National Telecommunications Information Agency (NTIA) and Rural Utilities Service (RUS) to adopt auction mechanisms to allocate broadband stimulus grants The broadband stimulus NOI asks which mechanisms NTIA and RUS should use to distribute grants and how those mechanisms address shortcomings in traditional grant and loan programs In this note we explain why procurement auctions are more efficient and more consistent with the stimulus goals of allocating funds quickly than a traditional grant review process We recommend that NTIA/RUS use procurement auctions to distribute at least part of the stimulus funds The American Recovery and Reinvestment Act (ARRA) requires NTIA/RUS to distribute $72 billion in broadband subsidies The broadband component of the Act has dual, and not entirely consistent, objectives of providing immediate economic stimulus and improving broadband service NTIA/RUS faces a formidable challenge in determining how to spend the money quickly and efficiently in ways that meet these goals The traditional grant application process is long, complicated, and involves subjective and arbitrary decisions regarding which projects to fund In other words, requesting and reviewing grant applications is not an effective way to implement the plan Procurement auctions, in contrast, provide a mechanism that can allocate grant money quickly, efficiently, and according to well-defined rules As a result, procurement auctions offer NTIA/RUS the most promising method of maximizing broadband improvement while also creating some level of “temporary, timely, and targeted” stimulus We therefore strongly recommend that NTIA/RUS adopt procurement auctions as its preferred method of distributing grants This memo has three parts First, it explains why the traditional grant application process is unsuitable for this task and why procurement auctions are better suited Second, it sketches out a procurement auction plan This plan is intended to be a starting point from which auction design experts would proceed to build and implement a fully functional auction Finally, we explain that even if policymakers are skeptical of procurement auctions, one could be implemented quickly as part of an initial tranche of stimulus funding in order to test its efficacy relative to traditional approaches This approach would allow NTIA/RUS to quickly expand upon or modify the procurement auction program in subsequent funding rounds

Conspicuous consumption, inconspicuous leisure*

Abstract: It is commonly argued that because relative consumption appears to matter to people, they must be involved in a rat race: people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one’s relative consumption now, it would worsen one’s relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects. ... the utility of both (conspicuous leisure and conspicuous consumption) alike for the purposes of reputability lies in the waste that is common to both. In the one case it is a waste of time and effort, in the other it is a waste of goods. Both are methods of demonstrating the possession of wealth, and the two are conventionally accepted as equivalents. Veblen (1899, [1925]). A growing body of empirical work suggests that contrary to what is customarily assumed in consumer demand theory, current consumption is not the only economic variable determining felicity (current utility). In an early work Duesenberry (1949) had explored the thesis that households care not only about their own consumption level, but also about their consumption level relative to those of other households in their reference group (Leibenstein, 1950). Named the demonstration effect, the thesis is that a person suffers felicity loss when others consumption levels rise, because his relative consumption now declines.

Conspicuous consumption, inconspicuous leisure

Abstract: It is commonly argued that because relative consumption appears to matter to people, they must be involved in a 'rat race': people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one's relative consumption now, it would worsen one's relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009. (This abstract was borrowed from another version of this item.)