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A Simple Exposition of Learning by Doing in Endogenous Growth Theory

Dipankar Dasgupta

in Dimensions of Economic Theory and Policy: Essays for Anjan Mukherji

This chapter presents a unified framework for understanding the implication of ‘learning by doing’ in endogenous growth models. It considers three different ways in which the concept of ‘learning by ... More

This chapter presents a unified framework for understanding the implication of ‘learning by doing’ in endogenous growth models. It considers three different ways in which the concept of ‘learning by doing’ has been exploited by the endogenous growth theory. The seminal work dates back to Kenneth Arrow (1962), who took a significant step towards offering a theory of labour augmentation and attributed productivity increases over time to learning. Arrow showed that technical progress amounts to ‘learning by doing’ and constructed an index for experience consisting of the value of cumulative gross investment at any point of time. Arrow's idea was extended by Antoine d'Autume and Philippe Michel (1993) and by Paul M. Romer (1986), the latter bringing out the importance of education and knowledge capital in determining the growth rates of economies. This chapter makes the three models comparable by utilizing a disembodied technical progress structure.Less

Discussion

Amy Finkelstein, Kenneth J. Arrow, Jonathan Gruber, Joseph P. Newhouse, and Joseph E. Stiglitz

in Moral Hazard in Health Insurance

This chapter presents the discussion between the audience members and the lecturer Amy Finkelstein, and commentators Kenneth J. Arrow and Joseph E. Stiglitz. The audience members initially raised a ... More

This chapter presents the discussion between the audience members and the lecturer Amy Finkelstein, and commentators Kenneth J. Arrow and Joseph E. Stiglitz. The audience members initially raised a set of questions regarding who to blame for the problem of moral hazard, what controls studies have that will address the problem of moral hazard, and how they will utilize preventive care as a solution to the problem of moral hazard, particularly on reducing medical care spending habits. In addition to the questions, Stiglitz followed up with two points concerning welfare issue and duration of spending for health care costs, which Finkelstein responded with agreement. Arrow topped off that these health care problems are aggravated by the fact that people need to pay tax to the government.Less

Introduction

Joseph P. Newhouse

in Moral Hazard in Health Insurance

The introduction analyzes the highly influential article “Uncertainty and the Welfare Economics of Medical Care,” by economist Kenneth J. Arrow. According to Arrow, there have been growing clinical ... More

The introduction analyzes the highly influential article “Uncertainty and the Welfare Economics of Medical Care,” by economist Kenneth J. Arrow. According to Arrow, there have been growing clinical capabilities of medical care as well as the acceleration of medical care's claims on the economy's resources. Arrow argues that the resources for medical markets cannot insure all medical risks, and that there is uncertainty of medical information about costs and benefits. An example would be when a patient seeks information from a physician yet the information about medical contingencies as well as the corresponding payments for these contingencies is impossible to acquire. This chapter considers economic arguments in two different medical care literatures: firstly, the effects of selection in individual or small-group insurance markets, and secondly, moral hazards.Less

Engaging with Impossibilities and Possibilities †

Elinor Ostrom

in Arguments for a Better World: Essays in Honor of Amartya Sen, Volume 2: Society, Institutions, and Development

Upon thinking deeply about Kenneth Arrow's ‘Impossibility Theorem’, Amartya Sen advises scholars not to despair, but to engage seriously the impossibility result so that we understand it better and ... More

Upon thinking deeply about Kenneth Arrow's ‘Impossibility Theorem’, Amartya Sen advises scholars not to despair, but to engage seriously the impossibility result so that we understand it better and know how to cope with the problems identified. This chapter follows Sen's advice. It engages another impossibility result — that of Garrett Hardin who convinced many economists and policy analysts that it was impossible for those harvesting from a resource to self-organize to sustain that resource over time. The chapter briefly reviews evidence from field and experimental research that challenge the generalizability of Hardin's result. It then presents a theoretical argument for the factors affecting the likelihood that the users of common-pool resource will self-organized to develop new rules restrict how a common-pool resource should be used.Less

Pluralism, Incompletely Theorized Agreements, and Public Policy

Jennifer Prah Ruger

in Health and Social Justice

This chapter draws on social choice theory and proposes incompletely theorized agreements (ITAs) as an approach to collective decision‐making in public policy and human rights. The chapter presents ... More

This chapter draws on social choice theory and proposes incompletely theorized agreements (ITAs) as an approach to collective decision‐making in public policy and human rights. The chapter presents difficulties in social choice, as illustrated by Arrow's Impossibility Theorem, and delineates three ITA models, incompletely specified agreements, and incompletely specified and generalized agreements. Health and health capabilities are multidimensional concepts about which there is no unique view. This chapter develops the ITA framework to health and health care decision‐making, and begins to operationalize the health capability paradigm by extending it when dominance partial ordering and incomplete specification cannot resolve conflicts among different views about health. The incomplete ordering of the capability view, in combination with incompletely theorized agreements on that ordering, allows for reasoned health policy development and analysis in the face of pluralism and conflicting views.Less

Introductory Remarks for the First Annual Arrow Lecture

Michael Woodford

in Creating a Learning Society: A New Approach to Growth, Development, and Social Progress

This chapter presents introductory remarks from Michael Woodford, John Bates Clark Professor of Political Economy, before the first Arrow Lecture at Columbia University. Woodford begins by citing ... More

This chapter presents introductory remarks from Michael Woodford, John Bates Clark Professor of Political Economy, before the first Arrow Lecture at Columbia University. Woodford begins by citing some of Kenneth Arrow's fundamental contributions to economic theory. He then introduces the economists participating in the discussion that took place after the lecture. These include Joseph Stiglitz, professor at Columbia University, with appointments in the Business School, the Department of Economics, and the School of international and Public Affairs; Bruce Greenwald, Robert Heilbrunn Professor of Asset Management at Columbia's Graduate School of Business; Philippe Aghion, Robert C. Waggoner Professor of Economics at Harvard University; and Robert Solow, Institute Professor Emeritus from MIT.Less

Vagueness and Similarity

TIMOTHY A. O. ENDICOTT

in Vagueness in Law

This chapter compares the similarity model with the boundary model, arguing that no social choice can determine sharp boundaries, but also rejects the notion that the location of boundaries is ... More

This chapter compares the similarity model with the boundary model, arguing that no social choice can determine sharp boundaries, but also rejects the notion that the location of boundaries is indeterminate. On the contrary, the notion of a location of boundaries is misleading. If the correct application of words is determined by a social choice of boundaries to their application, Kenneth Arrow's ‘impossibility theorem’ can be invoked to show that, under certain attractive assumptions, such boundaries cannot have a precise location. The social choice argument might be modified to claim that the location of boundaries is roughly determined by social choice: the possibility is examined and rejected through a critique of James Griffin's views on the rough equality in value of incommensurable options. That argument uses the work of Joseph Raz and John Finnis on incommensurability, and suggests that incommensurabilities in the application of vague language show that the indeterminacies arising from vagueness are significant.Less

Commentary

Kenneth J. Arrow

in Creating a Learning Society: A New Approach to Growth, Development, and Social Progress

This chapter presents a commentary by Kenneth J. Arrow, Professor Emeritus at Stanford University. He focuses on the issue of learning and knowledge emphasized by the Stiglitz-Greenwald paper. He ... More

This chapter presents a commentary by Kenneth J. Arrow, Professor Emeritus at Stanford University. He focuses on the issue of learning and knowledge emphasized by the Stiglitz-Greenwald paper. He says that although Arrow's paper alludes to the issue of competitive pressures and the effect tariffs and protection on efficiency, it really does not pursue this question very much. Nor does it explore deeply another issue that it poses—that of macroeconomic stability. Instead, the dominant theme of the paper is the question of spillovers and learning and how the presence of such effects may justify the adoption of industrial policies. He further says that most of the problems considered in the paper arise in a closed economy.Less

The Politics of Rational Choice

John McCumber

in The Philosophy Scare: The Politics of Reason in the Early Cold War

This chapter traces the rise of rational choice theory and discusses some of its philosophical implications. First formulated by Kenneth Arrow in 1951 as a theory of market and voting behavior, ... More

This chapter traces the rise of rational choice theory and discusses some of its philosophical implications. First formulated by Kenneth Arrow in 1951 as a theory of market and voting behavior, rational choice theory was useful in the Cold War of ideas because its emphasis on individual choice presented a point-for-point counter to Marxism. Taken up by the RAND Corporation and other prestigious venues, it became a highly influential paradigm without much critical discussion. Though advanced as an exercise in economics, it presents a sophisticated and systematic philosophical overview, and the chapter identifies ten of its philosophically salient theses. Epistemologically, it restricted knowledge to the kinds that go into making market decisions, and so underwrote empiricism. Since a rational chooser must be able to predict the future, it posited law-governed causal chains as constituting the most important dimension of reality. Its doctrine of consumer sovereignty, holding that the individual alone is responsible for her preferences and that these must be accepted as data rather than subjected to moral criticism, meant that traditional ethics was impossible.Less

Introduction

Joseph E. Stiglitz and Bruce C. Greenwald

in Creating a Learning Society: A New Approach to Growth, Development, and Social Progress

This volume is the result of the first in a series of lectures to honor Kenneth J. Arrow, one of Columbia University's most outstanding graduates, who received his Ph.D. from Columbia in 1951. This ... More

This volume is the result of the first in a series of lectures to honor Kenneth J. Arrow, one of Columbia University's most outstanding graduates, who received his Ph.D. from Columbia in 1951. This introductory chapter first describes the starting point of the present volume, namely Arrow's work on innovation, particularly his 1962 paper on learning by doing. The book approaches the question of free trade from Arrow's learning perspective. In so doing, it not only honors his legacy and challenges the conventional views, but also contributes to a key set of policy issues: how to increase the pace by which living standards increase, especially in developing countries. An overview of the subsequent chapters is also presented.Less

Moral Hazard in Health Insurance: Developments Since Arrow (1963)

Amy Finkelstein

in Moral Hazard in Health Insurance

This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare ... More

This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare Economics of Medical Care.” According to Finkelstein, the literature of moral hazard branches into two—ex ante moral hazard and ex post moral hazard—with the latter being usually considered. The concept of ex ante moral hazard is described as the deliberate exercising of an unhealthy lifestyle while aware that he is covered by a health insurance; while the idea of the ex post moral hazard states that at a given level of health, a person may choose to consume more medical products and services because the prices would be lower. Ex post connotes the price sensitivity of demand for medical care. The chapter considers two notable experiments, namely, RAND Health Insurance Experiment and Oregon Health Insurance Experiment as it turns the focus on just how many people will spend on medical care.Less

Arrow (1963): Uncertainty and the Welfare Economics of Medical Care

Kenneth J. Arrow

in Moral Hazard in Health Insurance

This chapter provides the framework of Kenneth J. Arrow's seminal article “Uncertainty and the Welfare Economics of Medical Care,” which consists of four parts. The first part focuses on the scope ... More

This chapter provides the framework of Kenneth J. Arrow's seminal article “Uncertainty and the Welfare Economics of Medical Care,” which consists of four parts. The first part focuses on the scope and method of the operation of the medical care industry and the efficacy with which it satisfies the needs of society. The second part covers a list of some special characteristics of medical care which distinguish it from the usual commodity of economic textbooks. The third part outlines some of the considerations within the medical-care industry. The last part compares the operations of the actual medical care market with an ideal system wherein the usual commodities and services as well as insurance policies against all conceivable risks are available.Less

Reason over Time

Jed Rubenfeld

in Freedom and Time: A Theory of Constitutional Self-Government

According to Kenneth Arrow's Impossibility Theorem, there is no consistent method of making a fair choice among three or more candidates using a preferential voting method. Based on an understanding ... More

According to Kenneth Arrow's Impossibility Theorem, there is no consistent method of making a fair choice among three or more candidates using a preferential voting method. Based on an understanding of rationality that is untenably compressed in its temporality—compressed into the present—this theorem depends in large part on certain voting “paradoxes” discovered by Marie-Jean-Antoine-Nicolas de Caritat, Marquis de Condorcet. In turn, these paradoxes reflect the present-tense conception of democracy to which Condorcet, no less than Thomas Jefferson, was devoted. Arrow's rationality condition essentially requires only that preferences be transitive. This chapter examines the relationship between rationality and intransitive preferences, along with the notion that Arrow's Impossibility Theorem reveals a special problem of irrationality for democratic (but not individual) decision-making, undermining the ideal of collective (but not individual) rationality and hence of collective (but not individual) self-government.Less

Commentary

Kenneth J. Arrow

in Moral Hazard in Health Insurance

This chapter provides a brief analysis of economist Kenneth J. Arrow's notions concerning economics professor Amy Finkelstein's lecture on hospitalization insurance. It begins by discussing the ... More

This chapter provides a brief analysis of economist Kenneth J. Arrow's notions concerning economics professor Amy Finkelstein's lecture on hospitalization insurance. It begins by discussing the distinctiveness of hospitalization insurance among others, followed by examining the rising trust issue within the relationship between the physician and the patient, before finally covering medical ethics. Arrow argues that, in terms of hospitalization insurance, the insured patients diagnosis might turn out differently from what had been discovered on the initial diagnosis, thereby aggravating the issue of varying medical costs. The issues on medical ethics, in conjunction with physician-patient relationship trust issue, include whether a physician undertakes his duties with due diligence as well as his motives of undertaking.Less

Commentary

Joseph E. Stiglitz

in Moral Hazard in Health Insurance

This chapter is economist Joseph E. Stiglitz's reply to fellow economist Amy Finkelstein's lecture as well as to the eminent Kenneth J. Arrows notions of hospitalization insurance. Stiglitz begins by ... More

This chapter is economist Joseph E. Stiglitz's reply to fellow economist Amy Finkelstein's lecture as well as to the eminent Kenneth J. Arrows notions of hospitalization insurance. Stiglitz begins by addressing the fundamental issue regarding the design of a health care and insurance system laboring under the presumption that their respective markets are not efficient. The chapter then considers Stiglitz's adherence to Arrow's conviction that medical practices vary across U.S. and between countries. In addition, Stiglitz proposes the development of an economic theory due to occurrences of moral hazards. The instances where there are imperfections of information, the known moral hazard, make us unable to foresee their economic implications. Stiglitz finally suggests that to better analyze the inconsistencies with information in these systems, right approximations and simplifications can be used.Less

Kenneth J. Arrow

Roger W. Spencer and David A. Macpherson

in Lives of the Laureates: Twenty-three Nobel Economists

This chapter describes the life and work of Kenneth J. Arrow who was awarded the Nobel Prize in 1972. Arrow was born in 1921, attended City College, and received his Ph.D. from Columbia University. ... More

This chapter describes the life and work of Kenneth J. Arrow who was awarded the Nobel Prize in 1972. Arrow was born in 1921, attended City College, and received his Ph.D. from Columbia University. He held the position of professor of economics, statistics, and operations research at Stanford University from 1953–1968. He was interested in the history of economic thought, particularly with reference to the relative importance of different factors in the development of new ideas. He studied developments in fields related to economics. For example, he looked at existence theorems using abstract and mathematical concepts. This research lead him to search for more applications of general equilibrium theory. He introduced the concept of contingent contracts, postulating on the existence of insurance against all conceivable risks. He developed a theorist's view of the economics of medical care for the Ford Foundation. Two books he wrote were Essays in the Theory of Risk-Bearing and The Limits of Organization.Less

Heterogeneity in Patent Theory: Why We Can't Agree Why We Patent

in The Patent Crisis and How the Courts Can Solve It

This chapter describes the major theories of patent law. Edmund Kitch's prospect theory strongly emphasizes the role of a single patentee in coordinating the development, implementation, and ... More

This chapter describes the major theories of patent law. Edmund Kitch's prospect theory strongly emphasizes the role of a single patentee in coordinating the development, implementation, and improvement of an invention. A prospect theory indicates that patents should be granted early in the invention process and should have broad scope and few exceptions. Kenneth Arrow's argument suggests a much more limited role for intellectual property rights. Both Joseph Schumpeter's monopoly incentive theory and Arrow's competition theory involve somewhat stylized models of innovation involving single inventions. Cumulative innovation theory contemplates patents on smaller inventions, but it would give less complete rights over those inventions than would prospect theory. The patent thicket problem suggests that patents should be narrowed so that the problem of overlapping scope will not arise in the first instance.Less

Equilibrium attainment vs. equilibrium necessities

Lawrence A. Boland

in Equilibrium Models in Economics: Purposes and Critical Limitations

This chapter is about Kenneth Arrow’s 1959 article about price adjustment. This chapter uses that article to explain the logical requirements of any equilibrium model that purports to explain, say, ... More

This chapter is about Kenneth Arrow’s 1959 article about price adjustment. This chapter uses that article to explain the logical requirements of any equilibrium model that purports to explain, say, equilibrium prices. Arrow explains why just assuming maximization on the part of both demanders and supplier in a market is not enough to assure equilibrium attainment. Arrow rejects the usual textbooks’ addition of an additional assumption that the markets are already at equilibrium. He instead argues that explicitly assumptions about the dynamics of equilibrium attainment must be included in any equilibrium model. The chapter thus discusses price adjustment in formal models; equilibrium attainment as an explicit process. It recognizes that Arrow equilibrium attainment also need something like imperfect competition to deal with any disequilibrium state that would necessarily exist prior to equilibrium attainment.Less