Kenneth J. Arrow

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

Studies in resource allocation processes

Abstract: Preface Acknowledgments for reprinted articles Part I. General Introduction: the design of resource allocation mechanisms L. Hurwicz Part II. Economies with a Single Maximand: 1. General survey: decentralization and computation in resource allocation K. J. Arrow and L. Hurwicz 2. Static characterization: constraint qualifications in maximization problems K. J. Arrow, L. Hurwicz and H. Uzawa Static characterization: quasi-concave programming K. J. Arrow and A. C. Enthoven 3. Decentralization within firms: optimization, decentralization, and internal pricing in business firms K. J. Arrow 4. Dynamic characterization: gradient methods for constrained maxima K. J. Arrow and L. Hurwicz 5. The handling of nonconvexities: reduction of constrained maxima to saddle-point problems K. J. Arrow and L. Hurwicz The handling of nonconvexities: a general saddle-point result for constrained optimization K. J. Arrow, F. J. Gould and S. M. Howe The handling of nonconvexities: convexity of asymptotic average production possibility sets L. Hurwicz and H. Uzawa Part III. Economies with Multiple Objectives: 6. Stability of competitive equilibrium: on the stability of competitive equilibrium I K. J. Arrow and L. Hurwicz Stability of competitive equilibrium: on the stability of competitive equilibrium II K. J. Arrow, H. D. Block and L. Hurwicz Stability of competitive equilibrium: on the stability of competitive equilibrium II: postscript K. J. Arrow and L. Hurwicz Stability of competitive equilibrium: some remarks on the equilibria of economic systems K. J. Arrow and L. Hurwicz 7. Competitive stability under weak gross substitutability: the 'Euclidean distance' approach K. J. Arrow and L. Hurwicz Competitive stability under weak gross substitutability: nonlinear price adjustment and adaptive expectations K. J. Arrow and L. Hurwicz 8. Stability in oligopoly: stability of the gradient process in n-person games K. J. Arrow and L. Hurwicz 9. Studies in local stability: a theorem on expectations and the stability of equilibrium A. C. Enthoven and K. J. Arrow Studies in local stability: a note on expectations and stability K. J. Arrow and M. Nerlove Studies in local stability: a note on dynamic stability K. J. Arrow and M. McManus Studies in local stability: stability independent of adjustment speed K. J. Arrow 10. Dynamic shortages: dynamic shortages and price rises: the engineer-scientist case K. J. Arrow and W. M. Capron Dynamic shortages: price-quantity adjustments in multiple markets with rising demands K. J. Arrow 11. Foundations of price dynamics: toward a theory of price adjustment K. J. Arrow Part IV. General Characterizations of Allocation Processes: Optimality and information efficiency in resource allocation processes L. Hurwicz On the dimensional requirements of informationally decentralized Pareto-satisfactory processes L. Hurwicz On informationally decentralized systems L. Hurwicz Appendix: an optimality criterion for decision-making under ignorance K. J. Arrow and L. Hurwicz Author index Subject index Index of examples.

Optimal and voluntary income distribution

Abstract: Introduction and summary The concept of the social welfare function was introduced by Bergson in his classic paper (1938) to express preferences over resource allocations to all individuals in society. Just as the commodity bundles of an individual are supposed to be compared by his or her individual preference ordering, so the alternative allocations of commodity bundles to all individuals can be ordered by a social welfare ordering over this entire space. As with any ordering satisfying certain regularity properties, the social welfare ordering can be represented by a real-valued function, the social welfare function. Its significance is essentially ordinal, but under additional conditions of separability the function representing an ordering can be chosen to be additive in an appropriate choice of variables. The optimization of a social welfare function should determine the entire allocation of resources among individuals and therefore includes the normative problems of income distribution. To concentrate on this topic, I will confine attention to the special case where there is only one commodity in the economic system. A resource allocation is then simply a vector with a (nonnegative) component for every individual in the economy. To combine attention to the simplest normative aspects, I will further abstract from incentive questions. It will simply be assumed that the total available of the one commodity is given and is not diminished by any transfers.

The Economy as an Evolving Complex System : The Proceedings of the Evolutionary Paths of the Global Economy Workshop, Held September, 1987 in Santa Fe, New Mexico

Abstract: * Foreward P.W. Anderson, Kenneth J. Arrow, and David Pines * Introduction and Overview David Pines Lectures And Perspectives * Self-Reinforcing Mechanisms in Economics W. Brian Arthur * Neural Nets for Economists Eric B. Baum * Persistent Oscillations and Chaos in Economic Models: Notes for a Survey Michele Boldrin * Nonlinearity and Complex Dynamics in Economics and Finance William A. Brock * Can New Approaches to Nonlinear Modeling Improve Economic Forecasts? J. Doyne Farmer and John J. Sidorowich * The Global Economy as an Adaptive Process John H. Holland * The Evolution of Economic Webs Stuart A. Kauffman * Computation and Multiplicity of Economic Equilibria Timothy J. Kehoe * A Simple Model for Dynamics away from Attractors Norman Packard * Statistical Mechanics Approaches to Complex Optimization Problems Richard Palmer * Can Nonlinear Dynamics Help Economists? David Ruelle * Rational Expectations, Game Theory and Inflationary Inertia Mario Henrique Simonsen Working Group Summaries * Working Group A: Techniques and Webs J. Guenther, J. Holland, S. Kauffman, T. Kehoe, T. Sargent, and E. Singer * Working Group B: Economic Cycles K. Arrow, W. Brock D. Farmer, D. Pines, D. Ruelle, J. Scheinkman, M. Simonsen, and L. Summers * Working Group C: Patterns P.W. Anderson, W.B. Arthur, E. Baum, M. Boldrin, N. Packard, J. Scheinkman, and L. Summers Final Plenary Discussion * Final Plenary Discussion Richard Palmer Summaries And Perspectives * A Physicist Looks at Economics: An Overview of the Workshop P.W. Anderson * Workshop on the Economy as an Evolving Complex System: Summary Kenneth J. Arrow Research Papers * Learning-By-Doing, International Trade and Growth: A Note Michele Boldrin and Jose A. Sheinkman * Lyapunov Exponents for Stock Returns J.-P. Eckmann, S. Oliffson Kamphorst, D. Ruelle and J. Scheinkman

Limited Network Connections and the Distribution of Wages

Abstract: It is well-known that 50% or more of all jobs are obtained through informal channels i.e. connections to family or friends. As well, statistical studies show that observable individual factors account for only about 50% of the very wide variation in earnings. We seek to explain these two facts by assuming that the linking of workers and firms is mediated by limited network connections. The model implies that essentially similar workers can have markedly different wages and further that the inequality of wages is partly explained by variations in the sizes of workers' networks. Our results indicate that differences in the number of ties can induce substantial inequality and can explain roughly 15% of the unexplained variation in wages. We also show that reasonable differences in the average number of links between blacks and whites can explain the disparity in black and white income distributions.

Prospect theory: an analysis of decision under risk

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

Absorptive capacity: a new perspective on learning and innovation

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. **

Dynamic capabilities and strategic management

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.