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Kenneth Joseph Arrow (born August 23, 1921) is an
United States|American economist, winner of the
Bank of Sweden Prize in Economic Sciences in
Memory of Alfred Nobel|Bank of Sweden Prize in
Economic Sciences in 1972. He is considered one of
the founders of modern (post World War II)
neo-classical economics.

His most significant works are his contributions
to social choice theory, notably "Arrow's
impossibility theorem", and his work on general
equilibrium analysis. He has also provided
foundational work in many other areas of
economics, including endogenous growth theory and
information economics.

He earned a Bachelor's degree from the City
College of New York in 1940.  At Columbia
University, he received  a Master's degree in 1941
and Doctor of Philosophy|Ph.D. in 1951. 


=== General Possibility Theorem===
Arrow's impossibility theorem was set out in his
Doctor of Philosophy|Ph.D. thesis, Social choice
and individual values. 

In its final form it states the following: given
the conditions of Pareto Optimality (P), Unbounded
social choice (S), Independence of choices (I) and
non-Dictatorship (D), it is impossible to
formulate a social choice function which satisfies
all of them. This has tremendous implications for
welfare economics and theories of justice. It was
extended by Amartya Sen to the Liberal Paradox
which argued that given a status of "Minimal
Liberty" there was no way to obtain Pareto
Optimality, nor to avoid the problem of social
choice of neutral but unequal results.

An example of this would be to have the following
choices to divide a cake between three people. Let
us call them A, B and C.

Choice 1: A gets nothing, B and C get half each.
Choice 2: B gets nothing, A and C get half each.
Choice 3: C gets nothing, A and B get half each.
Choice 4: divide the cake equally.

Thus choice 4 would be third from the bottom in
everyone's list, and would, in any direct choice
lose 2 to 1 against an unequal distribution. Since
all of these choices are Pareto optimal - no one's
welfare can be improved without reducing the
welfare of others - choice 4 would not be chosen,
since there would always be other preferred
choices.

=== General equilibrium theory ===
Working with Gerard Debreu (who won the Nobel
prize for this work in 1983), Arrow produced the
first rigorous proof of the existence of a market
clearing equilibrium, given certain restrictive
assumptions.  See general equilibrium. Arrow went
on to extend the model to deal with issues
relating to uncertainty, stability of the
equilibrium, and whether a competitive equilibrium
is efficient.

=== Endogenous Growth theory ===
Arrow was instrumental in kick-starting research
into endogenous growth theory (also known as new
growth theory) which sought to explain the source
of technical change, which is a key driver of
economic growth. Until this theory came to
prominence, technical change was assumed to occur
exogenous|exogenously - that is, it was assumed to
occur with no explanation of why it occurred.
Endogenous growth theory provided standard
economic reasons for why firms innovate - so
innovation and technical change are determined
endogenously - that is, within the model (hence
the name). A vast literature on this theory has
developed subsequently to Arrow's pioneering work.

=== Information Economics ===
In yet more pioneering research, Arrow
investigated the problems caused by asymmetric
information in markets. In many transactions, one
party (usually the seller) has more information
about the product being sold than the other party.
Asymmetric information creates incentives for the
party with more information to cheat the party
with less information; as a result, a number of
market structures have developed, including
warranty|warranties and third party
authentication, which enable markets with
asymmetric information to function. Arrow analysed
this issue for medical care (a 1963 paper entitled
"Uncertainty and the Welfare Economics of Medical
Care," in the American Economic Review); later
researchers investigated many other markets,
particularly second-hand assets, online auctions
and insurance. 

==Works==

* The Economic Implications of Learning by Doing
Review of Economic Studies 29 (June 1962) pp
155-73

* Essays in the Theory of Risk-Bearing 1971

* Existence of a Competitive Equilibrium for a
Competitive Economy Econometrica 22, no 3 (July
1954) pp 265-90, with Gerard Debreu

* General Competitive Analysis 1971, with Frank
Hahn

* Uncertainty and the Welfare Economics of Medical
Care American Economic Review 1963

* Existence of an equilibrium for a competitive
economy Econometrica (1954) Vol 22 No 3, with
Gerard Debreu

* Social Choice and Individual Values 1951

* The Limits of Organization 1974 ISBN 0393093239

==See also==
*List of economists
*List of economics consultancies and think tanks

==External links==
*http://www-econ.stanford.edu/faculty/arrow.html
*http://www.nobel.se/economics/laureates/1972/arro
w-autobio.html
*http://cepa.newschool.edu/het/profiles/arrow.htm