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.

Social Choice Theory

Abstract: Logician: OK, I will give it a try. Suppose you have three voters 1, 2, 3 and three states x, y, z that represent the things they want to achieve in casting their votes. The states could represent preferences for which game to play: hide-and-seek, kick-the-can or I-spy. Or they could represent the range of choice of candidates for leader of the nation. It does not really matter. Suppose each voter has a ranking of the states. We do not allow ties, so there are six possible rankings:

To profit or not to profit : the commercial transformation of the nonprofit sector

Abstract: Preface Introduction 1. The nonprofit mission and its financing: growing links between nonprofits and the rest of the economy Burton A. Weisbrod Part I. Basic Issues and Perspective: 2. Competition, commercialization, and the evolution of nonprofit organizational structures Howard P. Tuckman 3. Modeling the nonprofit organization as a multi-product firm: a framework for choice Burton A. Weisbrod 4. Pricing and rationing nonprofit organizations with distributional objectives Richard Steinberg and Burton A. Weisbrod 5. Differential taxation of nonprofits and the commercialization of nonprofit revenues Joseph J. Cordes and Burton A. Weisbrod 6. Interdependence of commercial and donative revenues Lewis M. Segal and Burton A. Weisbrod 7. Conversion from nonprofit to for-profit legal status: why does it happen and should anyone care? John H. Goddeeris and Burton A. Weisbrod Part II. Industry Studies: 8. Commercialism in nonprofit hospitals Frank A. Sloan 9. Universities as creators and retailers of intellectual property: life sciences research and economic development Walter W. Powell and Jason Owen-Smith 10. Commercialism in nonprofit social service associations: its character, significance, and rationale Dennis R. Young 11. Zoos and aquariums Louis Cain and Dennis Meritt, Jr 12. Commerce and the muse: are art museums becoming commercial? Helmut K. Anheier and Stefan Toepler 13. The funding perils of the corporation for public broadcasting Craig L. LaMay and Burton A. Weisbrod Part III. Concluding Remarks: 14. Commercialism among nonprofits: objectives, opportunities and constraints Estelle James 15. Conclusions and public policy issues: commercialism and the road ahead Burton A. Weisbrod References.

Social-ecological systems as complex adaptive systems : modeling and policy implications

Abstract: Systems linking people and nature, known as social-ecological systems, are increasingly understood as complex adaptive systems. Essential features of these complex adaptive systems – such as nonlinear feedbacks, strategic interactions, individual and spatial heterogeneity, and varying time scales – pose substantial challenges for modeling. However, ignoring these characteristics can distort our picture of how these systems work, causing policies to be less effective or even counterproductive. In this paper we present recent developments in modeling social-ecological systems, illustrate some of these challenges with examples related to coral reefs and grasslands, and identify the implications for economic and policy analysis.

Rationality of Self and Others in an Economic System

Abstract: In this paper, I want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory. In particular, I want to stress that rationality is not a property of the individual alone, although it is usually presented that way. Rather, it gathers not only its force but also its very meaning from the social context in which it is embedded. It is most plausible under very ideal conditions. When these conditions cease to hold, the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation. Let me dismiss a point of view that is perhaps not always articulated but seems implicit in many writings. It seems to be asserted that a theory of the economy must be based on rationality, as a matter of principle. Otherwise, there can be no theory. This position has even been maintained by some who accept that economic behavior is not completely rational. John Stuart Mill (1909, bk. 2, ch. 4) argued that custom, not competition, governs much of the economic world. But he adds that the only possible theory is that Standard economic doctrine makes assumptions of rationality that have very strong implications for the complexity of individuals' decision processes. The most complete assumptions of competitive general equilibrium theory require that all future and contingent prices exist and be known. In fact, of course, not all these markets exist. The incompleteness of markets has several side consequences for rationality. For one thing, each decision maker has to have a model that predicts the future spot prices. This is an informational burden of an entirely different magnitude than simply optimizing at known prices. It involves all the complexity of rational analysis of data and contradicts the much-praised informational economy of the price system. It is also the case that equilibria become much less well defined. Similar problems occur with imperfect competition. * This research was supported by the Office of Naval Research grant ONR-N00014-79-C-0685 at the Center for Research in Organizational Efficiency, Institute for Mathematical Studies in the Social Sciences, Stanford University, Stanford, California.

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.