Kenneth Joseph Arrow was an illustrious American economist whose groundbreaking contributions fundamentally shaped the fields of economic theory, particularly general equilibrium analysis and welfare economics. His influential work earned him the Nobel Prize in Economics in 1972, positioning him as a preeminent figure in the study of economics.
Life and Early Career
Early Life
Arrow was born on August 23, 1921, in New York City. He attended City College of New York, where he received a Bachelor’s degree in Social Science in 1940. He pursued further studies at Columbia University, where he completed a Master’s degree in Mathematics.
Academic Pursuits
During World War II, Arrow served as a weather officer in the US Army Air Corps. Post-war, he resumed his academic career and earned a Ph.D. at Columbia University in 1951 with a dissertation that laid the foundation for his later work in general equilibrium theory.
Contributions to General Equilibrium Analysis
Arrow-Debreu Model
Kenneth Arrow, in collaboration with Gérard Debreu, developed the Arrow-Debreu model, a cornerstone of modern economic theory. This model provides a comprehensive framework for understanding how prices and resources are allocated in perfectly competitive markets.
Mathematical Formulation
The Arrow-Debreu model uses a set of assumptions about consumer preferences, technology, and initial endowments to demonstrate the existence of an equilibrium in which supply equals demand across all markets. The model relies heavily on advanced mathematical concepts such as fixed-point theorems.
Impact on Welfare Economics
Arrow’s Impossibility Theorem
One of Arrow’s most famous contributions is Arrow’s Impossibility Theorem or General Impossibility Theorem, which he described in his 1951 book “Social Choice and Individual Values.” The theorem states that no rank-order voting system can be designed that always satisfies a set of fairness criteria.
Social Welfare Function
Arrow introduced the concept of a social welfare function, which attempts to aggregate individual preferences into a collective decision. Despite the limitations posed by his Impossibility Theorem, Arrow’s work paved the way for further research in social choice theory.
Legacy and Honors
Nobel Prize in Economics
In 1972, Arrow was awarded the Nobel Prize in Economics for his work in general equilibrium analysis and welfare economics. His contributions continue to influence economic research and policy-making.
Enduring Influence
Arrow’s work has left a lasting imprint on numerous areas of economics, including market design, health economics, and risk analysis. His theoretical advancements remain essential for economic scholars and practitioners.
FAQs
What is the Arrow-Debreu model?
What is Arrow's Impossibility Theorem?
How did Kenneth Arrow influence welfare economics?
References
- Arrow, Kenneth J. “Social Choice and Individual Values.” Yale University Press, 1951.
- Debreu, Gérard. “Theory of Value: An Axiomatic Analysis of Economic Equilibrium.” Yale University Press, 1959.
- Nobel Prize Organization. “Kenneth J. Arrow - Biographical.”
Summary
Kenneth Arrow’s seminal contributions to general equilibrium analysis and welfare economics have had an indelible impact on the field of economics. His innovative models and theories continue to serve as fundamental tools for economists worldwide, cementing his legacy as a pioneering thinker and Nobel Laureate.
