Three brief proofs of Arrow’s Impossibility Theorem

Summary. Arrows original proof of his impossibility theorem proceeded in two steps: showing the existence of a decisive voter, and then showing that a decisive voter is a dictator. Barbera replaced the decisive voter with the weaker notion of a pivotal voter, thereby shortening the first step, but complicating the second step. I give three brief proofs, all of which turn on replacing the decisive/pivotal voter with an extremely pivotal voter (a voter who by unilaterally changing his vote can move some alternative from the bottom of the social ranking to the top), thereby simplifying both steps in Arrows proof. My first proof is the most straightforward, and the second uses Condorcet preferences (which are transformed into each other by moving the bottom alternative to the top). The third proof proceeds by reinterpreting Step 1 of the first proof as saying that all social decisions are made the same way (neutrality).Received: 9 July 2001, Revised: 2 September 2004, JEL Classification Numbers: D7, D70, D71.John Geanakoplos: I wish to thank Ken Arrow, Chris Avery, Don Brown, Ben Polak, Herb Scarf, Chris Shannon, Lin Zhou, and especially Eric Maskin for very helpful comments and advice. I was motivated to think of reproving Arrows theorem when I undertook to teach it to George Zettler, a mathematician friend. After I presented this paper at MIT, a graduate student there named Luis Ubeda-Rives told me he had worked out the same neutrality argument as I give in my third proof while he was in Spain nine years ago. He said he was anxious to publish on his own and not jointly, so I encourage the reader to consult his forthcoming working paper. The proofs appearing here appeared in my 1996 CFDP working paper. Proofs 2 and 3 originally used Mays notation, which I have dropped on the advice of Chris Avery.     

A one-shot proof of Arrow’s impossibility theorem

We offer a new proof of the well-known Arrow??s impossibility theorem. The proof is simple, very short and it follows from the assumptions in a transparent way.     

Schumpeter’s new combinations

The paper focuses attention on Schumpeter’s achievements in his classic contribution and how these relate to the contributions of other major authors. While deeply indebted to Marx’s vision of capitalism as a system incessantly in travail, Schumpeter was no ‘Marxist’. He shared B?hm’s view that profits are not due to ‘exploitation’, but thought that the latter’s attack on Marx was a failure. There are remarkable differences, but also similarities between the analyses of Schumpeter and Keynes. Marx, Schumpeter and Keynes rejected Say’s law and other basic ideas constituting the marginalist doctrine. They saw capitalism as a restless, crisis-prone system.     

Veblen’s Two Types of Instinct and the Cognitive Foundations of Evolutionary-Institutional Economics

In this article, I provide a detailed examination of Thorstein Veblen’s conception of instincts, what he believed were the “prime movers in human behavior.” I outline the meaning of his division of instincts into simple and complex forms, and also document his account of their operational function and evolutionary origins. I then evaluate this understanding in relation to the new field of evolutionary psychology, and demonstrate how Veblen conceived of these instincts as interacting with habits and institutions. Finally, I illustrate one method of how the bio-cognitive level of behavioral reality could be integrated with the socio-institutional level of behavioral reality, and how an intermediate-interactive level between these two could have been generated. By doing so, I emphasize the need for scientifically accurate cognitive foundations to evolutionary-institutional economics (EIE)     

Debreu’s social equilibrium theorem with asymmetric information and a continuum of agents

We provide several different generalizations of Debreu’s social equilibrium theorem by allowing for asymmetric information and a continuum of agents. The results not only extend the ones in Kim and Yannelis (J Econ Theory 77:330–353, 1977), Yannelis and Rustichini (Stud Econ Theory 2:23–48, 1991), but also new theorems are obtained which allow for a convexifying effect on aggregation (non-concavity assumption on the utility functions) and non-convex strategy sets (pure strategies). This is achieved by imposing the assumption of “many more agents than strategies” (Rustichini and Yannelis in Stud Econ Theory 1:249–265, 1991; Tourky and Yannelis in J Econ Theory 101:189–221, 2001; Podczeck in Econ Theory 22:699–725, 2003). To the memory of Gerard Debreu. A preliminary draft was presented in Paris, in April of 2005. I have benefited from the discussion, comments and questions of Erik Balder, Jean-Marc Bonnisseu, Bernard Cornet and Filipe Martins Da-Rocha and Conny Podczeck. A careful and knowledgeable referee made several useful comments and rescued me from a mishap.     

The effects of old and new media on children’s weight

Childhood obesity rates have recently been rising in many countries. It has been suggested in the literature that changes in children’s media exposure may contribute to explaining this trend. I investigate whether or not this hypothesis is supported by data. I contribute to the literature by focusing not only on television but also on new media – computers and video games. The Child Development Supplement to the Panel Study of Income Dynamics is used for the analysis. To address the endogeneity of children’s media exposure, I use dynamic and panel data models. This is another improvement upon the existing literature. Additionally, an extensive list of control variables is included in the regressions. I find that video game playing or computer use has no effect on children’s body weight. On the other hand, television viewing may increase children’s body weight slightly.     

HBO’s Two Frontiers: Deadwood and The Wire

The Wire (five seasons, 2002–2008) takes place in Baltimore, an urban venue that is distinguished by diverse modes of violence and alienation – the colour line, tensions between governmental bureaucracy and citizen, between policing executives and investigators, between corporate-oriented drug dealers and individual (take-no-prisoners) dealers, and in general between aspiring change-agents and entrenched power holders. And most significantly for this analysis, The Wire explores what Robert Crooks identifies as the new “urban frontier.” The older frontier (in “the West”) is depicted in Deadwood (three seasons, 2004–2006). That frontier, as Cronon, Miles, and Gitlin point out, was, at the outset of the Euro American–Native American encounter, a space of negotiation, a space in which institutionalised regionalisation had not yet been installed.     

Questions and an swers about Europe’s new currency

WillFrankfurtofParisdisplaceLondonasthefinancialcapitalofEurope?Thiswasoneofthebigpre-dictionsbefore1999 —admittedlyapredictionmademainlybyGermansandFrenchmen.WithBritainoutsidetheeurozone,thereasoningwent,London’sstatuswassuretofalter.Ithasnot.Sure,FrankfurtandParisbothhavestockexchangesthataremoreinnovativeanddynamicthanthestodgyLondonexchange.ButtheLSEhasplayedonlyaminorroleintherebirthofLondonasama-jorfinancialcapital.Thatrebirth,whichbeganinthe1960s,wasallaboutLondonbecomingacen…     

Determinants of India’s Exports

The objective of this paper is to examine the key determinants of India’s exports. The estimated equations show that the two variables influencing India’s export demand are the real effective exchange rate and world exports. The time trend variable which was introduced to take care of the stationarity problem and India’s GDP which is a proxy for availability also are statistically significant. Equations were also estimated at a disaggregated level of commodity groups. The article also focuses on measuring the relative contribution of the variables. For this, a new methodology is proposed. World exports which emerges as the dominant variable is however exogenous to Indian policy makers. This leaves nominal exchange rate as the tool available to policy makers. In the market determination of exchange rate, besides current account deficit, capital flows also play an important part. There is need to moderate the impact of large capital inflows on exchange rate through appropriate intervention so long as we continue to have current account deficit. An appreciating currency will erode the competitiveness of exports. Truly speaking, the critical factor is not so much exchange rate as competitiveness. In this context, maintaining domestic price stability and improving the productivity, particularly of the traded goods sector are equally important.

     

Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism

In the main, Hayek favored rules that apply equally to all and located such rules in tradition, beyond conscious construction. This led Hayek to attack Keynes’s immoralism, i.e., the position that one should be free to choose how to lead one’s life irrespective of the informal institutions in place. However, it is argued here that immoralism may be compatible with Hayek’s enterprise since Hayek misinterpreted Keynes, who did not advocate the dissolving of all informal rules for everybody. By avoiding this misinterpretation, immoralism can be seen as institutional experimentation at the margin, which Hayek himself favored.

Poland’s uninterrupted growth performance: new growth accounting evidence

Since 1992 Poland has experienced an exceptionally long spell of output growth that was not interrupted even by the global economic crisis. Using a growth accounting exercise based on new estimates of flows of capital and labour services in the Polish economy during the period 1996–2013, we study the structure of this growth, highlighting the key role of certain supply-side factors. Most notably, unlike other European countries, the Polish economy recorded both a marked increase in capital deepening, a big improvement in workforce composition (driven mostly by educational attainment), and an uninterrupted process of productivity convergence. We also comment on the supply-side factors which contributed to Poland’s relative resilience to the global economic crisis of 2007–2010.     

The myth of China’s monetization

This article develops a simple model of M2/GDP based on the money demand function of Milton Friedman. This model proves that M2/GDP is positively related to the expected wealth and negatively related to the opportunity costs of holding money. China’s extremely high monetization ratio as measured by M2/GDP is the result of a decades-long rapid economic growth and a depressed financial system. Fast economic growth leads to high expected wealth. A depressed financial system leads to low opportunity costs of holding money. The combination of those two factors increases money demand and leads to very high M2/GDP. The model is verified indirectly by testing two implied testable hypothesizes. The study of this article raises questions on the accuracy of M2/GDP as a measure of monetization.     

The Crisis of America’s Cities

This paper aims to show how state intervention within the European Monetary Union can have positive effects not only on growth but also on public balances and debt. The relation between centralized monetary policy and decentralized fiscal policy partly solves the lack of coordination between the two. Each time a fiscal expansion in an EU country is not accompanied by a Central Bank interest rate increase, the expansionary effect of public spending, initially financed through the emission of public bonds, will be reinforced by endogenous money creation due to the increase in growth. The final result, if growth exceeds the rate of interest, is not only an increase in equilibrium income, but also a reduction in debt.     

On the origin of money,or Menger’s one-sided reading of Genovesi’s Lezioni

Abstract

By examining Menger’s interpretation of Genovesi’s arguments on the origin of money, this note shows that Genovesi is a subtle theorist managing to blend the Cartalist with the Mengerian approaches to the origins of money. Far from resting exclusively on the Mengerian unattended consequences of the uncoordinated behaviours of rational agents trying to minimise their transaction costs, Genovesi shows how governments can and do create fiat money with a positive value in connexion with their ability to raise taxes. For Genvesi both trust (à la Menger) and authority (à la Cartalist) are necessary to explain the positive value of money.     

Veblen’s System of Conspicuous Waste

Abstract:

The touchstone by which Thorstein Veblen evaluated an expenditure was “whether it furthers the life process taken impersonally.” For Veblen, the economic problem involved the problem of social provisioning, the way a community provides for itself. To a large degree, social provisioning has been impeded by the system of conspicuous waste, a “scheme of properties, decencies, and standards of living, the economic motive of which is competitive spending.” The system of conspicuous waste represents a cultural unfolding of conspicuous waste, prompted by the introduction of continuous-mass production in the late nineteenth, early twentieth centuries. Conspicuous waste refers to the allocation of resources, time, and effort that detract from the life process. Veblen rejected the idea that the system of conspicuous waste benefits society. For Veblen, the standard of living refers to that level of consumption at which people are expected to consume. Products that prove serviceable, however, may also serve as symbols of invidiousness. Veblen used the system of conspicuous waste to compare the diverse cultural responses of England and Germany to the same technology in the early twentieth century. The system, however, plays a central role in absorbing increases in output and maintaining profits. Whether it can continue to do so remains questionable.     

The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

In a New Keynesian DSGE model with non-Ricardian consumers, we show that automatic stabilization according to a countercyclical spending rule following the idea of the debt brake is well suited both to steer the economy and in terms of welfare. In particular, the adjustment account set up to record public deficits and surpluses serves well to keep the level of government debt stable. However, it is essential to design its feedback to government spending correctly, where discretionary lapses should be corrected faster than lapses due to estimation errors.     

China’s secondary privatization: new evidence on controlling shareholders tunnelling

This article utilizes the 2005 split-share structure reform (SSSR) in China as a natural experiment and conducts difference-in-differences (DID) tests to analyse corporate governance changes among Chinese SOEs compared to POEs. We show that tunnelling significantly reduced in both POEs and SOEs after the SSSR. More importantly, we find a significant and positive ‘privatization effect’ on SOEs’ tunnelling activities during the post-reform period suggesting the reductions of tunnelling were smaller among SOEs than POEs following the SSSR. In contrast, excess returns around the SSSR indicate that investors expected a negative ‘privatization effect’ on SOEs’ tunnelling. These findings suggest that the quality of corporate governance did not improve among SOEs as a result of the secondary privatization as the stock market expected without fundamental changes to firm ownership and control following the SSSR. The benefits of privatization accrue to the government controlling shareholders rather than minority investors.     

Differential effects of mother’s and child’s postnatal WIC participation on breastfeeding

We evaluate the effect of postnatal participation in the Women, Infants, and Children (WIC) programme on breastfeeding decisions using the data from the IFPS II. We find that the infant’s WIC participation positively affects the hazard of discontinuing breastfeeding, both partial and exclusive (and is thus associated with abbreviated breastfeeding duration). No significant association is found between the mother’s participation and the hazards of stopping exclusive or partial breastfeeding. Such differential effects might be a result of the programme’s policy, according to which the infant, but not the mother needs to be enrolled to receive free formula.     

The European Commission’s new NAIRU: Does it deliver?

The non-accelerating inflation rate of unemployment (NAIRU) is a key component of potential output and as such critically affects output gap estimates. In May 2014, the European Commission changed its specification of the NAIRU for several countries and lowered its NAIRU estimates – in the case of Spain from 26.6% to 20.7% for 2015. To test the dependence of the new NAIRU on unemployment versus structural factors, we run counterfactual simulations applying 1SD shocks to actual unemployment and to the structural variable – real unit labour costs. We find that the NAIRU in its new specification is still largely determined by actual unemployment. This calls in question both the interpretation of potential output estimates as barriers to more vigorous inflation-stable economic activity and the accuracy of structural deficit figures.