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.

Ricardo's Work as Viewed by Later Economists

Abstract: : David Ricardo was a peaceful man, well liked and admired for both his intellectual and his personal traits by his colleagues and rivals whether on the Stock Exchange, in the nascent field of political economy, or among the members of Parliament. He could maintain personal friendship and well behaved exchange of ideas with someone as strongly removed in both religion and economic doctrine as Thomas Malthus. The intellectual strength of his written work could dominate the thought of such a great mind as that of John Stuart Mill and rouse the writer Thomas de Quincey from his opium-riddled state to renewed mental vigor. Yet Ricardo's posthumous reputation has been very variable. Many economists in the decades after his death attacked the realism of his theories, particularly with regard to population pressure. This document discusses varying views of Ricardo's work by later economists.

Social choice and public decision making

Abstract: Part I. Social Choice: 1. Consequentialist social norms for public decisions Peter J. Hammond 2. Information and invariance in normative choice Amartya Sen 3. Utilitarian morality in a world of very half-hearted altruists John C. Harsanyi 4. On the implementation of social choice rules in irrational societies Leonid Hurwicz 5. Walrasian social choice: some simple axiomatic approaches Louis Gevers Part II. Decision Making in the Public Sector: 6. Testing for optimality in the absence of convexity Herbert E. Scarf 7. Toward a theory of planning Michael D. Intriligator and Eytan Sheshinski 8. On the social risk premium David A. Starrett 9. A problem of financial market equilibrium when the timing of tax payments is indeterminate David F. Bradford 10. The shadow price of capital: implications for the opportunity cost of public programs, the burden of the debt, and tax reform Robert C. Lind.

On the Agenda of Organizations

Abstract: In classical maximizing theory, it is implicit that the values of all relevant variables are at all moments under consideration. All variables are therefore agenda of the organization, that is, their values have always to be chosen. On the other hand, it is a commonplace of everyday observation and of studies of organization that the difficulty of arranging that a potential decision variable be recognized as such may be much greater than that of choosing a value for it. What the Federal Government regards as appropriate agenda has changed rapidly; nor can it be maintained that the new agenda necessarily correspond to changes in demand or supply, i.e., the emergence of new problems in the world or of new techniques for their solution. Unemployment insurance is an old idea, and the need for it did not emerge only in the Great Depression; but it suddenly changed from a non-agendum to an agendum. (I shall occasionally make use of this singular form, though the dictionaries label it obsolete.) Similar examples can be cited for all sorts of organization; innovation by firms is in many cases simply a question of putting an item on its agenda before other firms do. We can also see some items now in the process of becoming agenda. In the case of the Federal Government, the possibility of flexible exchange rates is at least on the horizon.

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.