17 votes

Why teach Arrow's impossibility theorem?

What you describe has not much to do with Arrow's impossibility theorem. This is called the Condorcet paradox. The preference profile you gave is used to demonstrate that even if all individual ...
Giskard's user avatar
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16 votes
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Why teach Arrow's impossibility theorem?

I see the important lesson of the impossibility theorem as establishing that it is not generally speaking possible to have nicely behaved preferences of groups, even if individuals have nicely ...
BKay's user avatar
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13 votes

Why teach Arrow's impossibility theorem?

There is a temptation for economists to be utilitarians - to go around trying to maximise some measure (total, average, minimax as in Rawls ...) of utility. I think this happens even to economists who'...
Tony Curzon Price's user avatar
6 votes
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When were the First and Second Welfare Theorems proven?

Perhaps you have heard the competitive equilibrium referred to as the Arrow-Debreu equilibrium. The idea of the theorems existed earlier but Arrow introduced the theorems formally in a way that is ...
Giskard's user avatar
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5 votes
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Transformation Function

I know that this is an old question, but I thought I'd add an answer in case it's helpful to others with a similar question. My interpretation of the original question was that the question asker was ...
Julia B's user avatar
  • 76
5 votes

Is a universal basic income possible in the United States?

A new report by the Roosevelt Institute answers exactly that using a Keynesian, Stock-Flow-Consistent model calibrated to the US. According to their result, when distributional changes are considered, ...
luchonacho's user avatar
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5 votes
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Pareto optimality with externalities

I feel like I do not understand the exact meaning behind the notion of the Pareto optimality. It's not you. There are different senses of the phrase "Pareto Optimal," and you have to figure out ...
Bill's user avatar
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5 votes
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Why does optimal allocation call for unlimited distribution of information?

Suppose you have a product that you can distribute for constant marginal cost $c$. For every $v\geq0$ assume there are some consumers who value the good at $v$. The net welfare created when someone ...
Ubiquitous's user avatar
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5 votes
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Do any social welfare functionals, other than maximin, meet all of Arrow's conditions plus invariance regarding ordinal level comparability?

There are at least two other examples of SWFs that satisfy these conditions. The first is a positional dictatorship. Let N be the number of individuals (assume it is fixed). For any k between 1 and ...
Marcus Pivato's user avatar
5 votes
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Is the consumer surplus on a Giffen/Veblen good negative?

Actually, neither demand for Veblen good nor for Giffen good is strictly increasing in price. In case of Giffen good the demand actually looks as shown below in picture 1. The reason for this is that ...
1muflon1's user avatar
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5 votes
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Is $(\mathbb{R}^m)^n$ the real coordinate space of dimension $m\cdot n$?

No. And yes. For any set $X$ we have (by definition) $$X^k=\underbrace{X\times\cdots\times X}_{k\text{-times}}=\{(x_1,x_2,\ldots,x_k)\mid x_i\in X\text{ for }i=1,\ldots,k\}.$$ Now let, for example, $m=...
Michael Greinecker's user avatar
5 votes
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Pigouvian tax with general utility function

The first order condition for individual $a$ when the price of $y$ equals $p_y(1+t)$ is given by: $$ \frac{\partial u_a}{\partial y_a} = p_y(1+t) \left(\frac{1}{p_x} \frac{\partial u_a}{\partial x_a} \...
tdm's user avatar
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5 votes

Choice Theory Book Reccomendations

The title "Choice Theory" is a bit ambiguous, because it could refer to Social Choice Theory (the theory of collective decisions), but it could also refer to the broader concept of Rational ...
Marcus Pivato's user avatar
4 votes
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Is the convexity of production sets necessary for the welfare theorems?

Convexity of the production set is indeed not needed for the proof of the first welfare theorem but for the proof of the second welfare theorem. It is not a necessary condition though. It is ...
Michael Greinecker's user avatar
4 votes
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Does immigration help to sustain welfare in rich European countries?

Here is a chart from the OECD, which shows the net fiscal impact of migrants on their recipient country (i.e. by how much to they contribute or withdraw from the welfare state, albeit excluding in-...
Ubiquitous's user avatar
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4 votes

Does the 2nd welfare theorem involve government intervention?

The second welfare theorem does not necessarily involve a government as such. It does not matter for the theorem who redistributes the resources. Nevertheless, in practice this will most likely often ...
BB King's user avatar
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4 votes
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Theory of and studies on the long-term effect of governmental redistribution

This is a very broad question and no one except the respondents in question know exactly what they believe and why. However, I suspect one important result in this context is the Second Welfare ...
BB King's user avatar
  • 6,148
4 votes

Microeconomics: first fundamental theorem of welfare

The most common version of Pareto dominance says that an allocation is Pareto-dominated if there is another feasible allocation in which at least one agent is better off and everyone else is at least ...
Michael Greinecker's user avatar
4 votes

Rawlsian SWF and Arrow Impossibilty Theorem

Independence of irrelevant alternatives prevents you from using the information needed to implement a Rawlsian SWF; the information who is society's worst-off cannot be used. Indeed, the relevant ...
Michael Greinecker's user avatar
4 votes
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Calculating the substitution effect with the derivative

You wrote: Unless our Hicksian demand was linear, it would be inappropriate to actually calculate the SE for large changes in P using: $\frac{\partial h}{\partial p_{x}}∆P_x$ You are right, a ...
BakerStreet's user avatar
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3 votes

Weak Axiom of Revealed Preference

I can shed some light on the question, but am not sure I can answer it as I am not sure it is really even well defined. (1) The Weak Axiom of Revealed Preference is a decision theoretic concept ...
201p's user avatar
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3 votes
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If Y=K+C, why the value of a marginal unit of capital is the same of the value of a marginal unit of output?

This is a single-good model, that is, output is of one good which can be either consumed or added to capital. The dynamic optimisation problem is to maximise the discounted present value of utility, ...
Adam Bailey's user avatar
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3 votes
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equilibrium, optimum, and decentralizing the optimum

Q1 Optimal usually means one of two things: Pareto optimal (there's no way to change the outcome such that everyone is at least as well-off, but someone is strictly better-off). Optimal in the ...
Ubiquitous's user avatar
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3 votes

welfare economics journals

This is from the end of the first chapter in the book Public Finance in Canada 4th edition by Harvy Rosen. This book is a primer for welfare economics. The book states gives a list of: Journal of ...
EconJohn's user avatar
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3 votes
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What are general equilibrium effects?

The expression "general equilibrium" refers to the work by Kenneth Arrow, Gerard Debreu, Leon Walras, and many others. In its strictest sense, it is the indirect impact of a policy/event that is due ...
goingaround's user avatar
3 votes
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Can consumer surplus be negative if a consumer is forced to make a purchase?

Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are ...
Regio's user avatar
  • 4,188
3 votes

Microeconomics: first fundamental theorem of welfare

Local non-satiation means that you always want a little bit more. There are no sweet spots where you are content and wouldn't accept any more of $x_i$. What this means in practice is that if you are ...
Jamzy's user avatar
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3 votes
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Why isn't high inflation along with robust welfare a 'good' system?

There are several reason for that. First, issue here is that you are talking about high inflation. Most economists are in favor of small inflation (around 2% per year for reasons you can read about in ...
1muflon1's user avatar
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