By: Juan Dubra.
Research
Juan Dubra: In the press release of the Nobel committee both your work on
general equilibrium and your impossibility theorem were mentioned. I find the
two works very different in focus, in its basic questions and methodology, not
to mention that the impossibility theorem started a whole new area of research.
Did you think it was natural to pool those two strands of your research
together?
Kenneth Arrow: It was not entirely natural. The reason why it
happened that way was that they were giving the prize jointly to me and to John
Hicks for our work on General Equilibrium and Welfare Economics. Hicks had made
important contributions to General Equilibrium. He had made a very important
contribution to Welfare Economics. He enunciated a general criterion for
welfare improvements: the so-called Potential Pareto Improvement idea. Of
course, my work on Social Choice also relates to Welfare Economics but in a
rather different way. His approach to Welfare Economics was very in line with
this work in General Equilibrium. But my work was also about Welfare Economics
and General Equilibrium. So they awarded the prize jointly, and made the two
contributions comparable.
JD: But seen in perspective, Hicks is no longer
studied, and both your work on General Equilibrium and on the Impossibility
Theorem are all over the place. Moreover, they are two completely different
fields nowadays.
KA: They considered my work and Hicks' as
contributions to the same purpose. But you are right; I think it was a stretch
on the part of the Nobel Committee.
JD: Excluding your work leading to the Nobel
Prize, and your 1963 paper on the AER about the health services market that
initiated the asymmetric information literature, which area do you think was
the one with the biggest impact? The work about growth and learning by doing;
the insights about risk and risk sharing; or the work on information, its
demand and its implications for returns to scale; or the economics of racial
discrimination, and discrimination in general?
KA: It's a good question. The first two areas have
had a much bigger impact than the third and fourth.
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