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The author or concept searched is found in the following 9 entries.
| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Free Lunch | Demsetz | Henderson I 54 Free Lunch Fallacy/DemsetzVsArrow/Demsetz/Henderson/Globerman: Risks/inventions/Arrow: Arrow(1) argued that for private enterprise to yield optimal invention, there must be "commodity-options" so that inventors can redirect risk to other people who are willing to bear it.* Arrow wrote that a commodity-option is a contract "in which buyers pay an agreed sum and sellers agree to deliver prescribed quantities of a given commodity if a certain state of nature prevails and nothing if that state of nature does not occur". Arrow argued that "the real economic system does not possess markets for commodity-options" (1962(1): 610-611). DemsetzVsArrow: Demsetz took issue, noting that commodity-options did exist. Imagine how much stronger Demsetz's empirical case would have been if he had written it in 1974, just after the Chicago Board Options Exchange had come into existence in 1973: commodity options are traded on that exchange. But Demsetz noted an important reason that they didn't exist as fully as Arrow would have liked: the cost of creating them. Free lunch/DemsetzVsArrow: „Arrow here has slipped into the fallacy of the free lunch. The word "nonoptimal" is misleading and ambiguous. Does it mean that free enterprise can be improved upon? Henderson I 55 Let me suppose that the cost of marketing commodity options exceeds the gain from adjustment to risk. This would account for their presumed absence. Can it be said that free enterprise results in a nonoptimal adjustment to risk? To make this assertion is to deny that scarcity is relevant to optimality, a strange position for an economist. In suggesting that free enterprise generates incomplete adjustments to risk, the nirvana approach, by comparing these adjustments with the ideal, is led further to equate incomplete to nonoptimal. This would be correct only if commodity-options or other ways of adjusting to risk are free. In this way, the nirvana approach relies on an implicit assumption of nonscarcity, but since risk shifting or risk reduction cannot generally be accomplished freely the demonstration of nonoptimality is false. (1969(2): 3-4) >Nirvana fallacy/Demsetz. In short, the fact that many commodity-options do not exist is, far from being a market failure, a market success. Markets weed out goods and services whose costs exceed their value. Arrow: Even if there were commodity-options, argued Arrow, the free market would still underinvest in information. Arrow gave two reasons: risk aversion and moral hazard. >Risk aversion, >Moral hazard, >Free-rider problem. DemsetzVsArrrow: Demsetz pointed out the “people could be different” fallacy in each. ((s) i.e., this a is a pure assumption and not a proof.) >Risk aversion/Demsetz, >Moral hazard/Demsetz. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). 2. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22. |
EconDems I Harold Demsetz Toward a theory of property rights 1967 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Inventions | Arrow | Henderson I 54 Risks/inventions/Arrow/Henderson/Globerman: Arrow(1) argued that for private enterprise to yield optimal invention, there must be "commodity-options" so that inventors can redirect risk to other people who are willing to bear it.* Arrow wrote that a commodity-option is a contract "in which buyers pay an agreed sum and sellers agree to deliver prescribed quantities of a given commodity if a certain state of nature prevails and nothing ifthat state of nature does not occur". Arrow argued that "the real economic system does not possess markets for commodity-options" (1962(1): 610-611). For DemsetzVsArrow see >Free Lunch/Demsetz, >Nirvany fallacy/Demsetz. * The idea here is that because not all People have the same attitude to risk, it makes sense for those who are more risk averse to pay less risk averse People for bearing risk. Commodity-options achieve that transfer of risk. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). |
EconArrow I Kenneth J. Arrow Social Choice and Individual Values: Third Edition New Haven 2012 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Markets | Smith | Surowiecki I 144 Markets/Prices/Information/Smith, Vernon L./Surowiecki: Problem: How do markets work without information being available to everyone? How does it turn out that goods go from the people who produce them cheapest to the people... Surowiecki I 145 ...that need them most urgently? Smith: investigated this question empirically in a laboratory in 1956 (which was unusual at the time). A group of 22 students were divided into buyers and sellers. Each seller received a card stating the lowest price at which he was selling, each buyer received a card with the highest price at which he should be willing to buy. Surowiecki I 146 In the laboratory situation, this resulted in a "market" that followed the model of the so-called reciprocal auction, which is similar to the usual stock exchange. Offers and acceptances were announced by acclamation. Conclusions were noted on a blackboard. Smith wanted to find out whether there would be a price in line with the market in theory. Surowiecki I 147 In fact, prices quickly converged to a price, even though none of the participants wanted such a result, as buyers wanted lower prices and sellers wanted higher prices. The participants did not have any more information than the prices noted on the cards. Further result: the Group's total profit was boosted by the market. The group could not have done better if it had had more information. (1) Vernon L SmithVsArrow, Kenneth J./Surowiecki: Kenneth Arrow and Bernard Debreu had shown in the 1950s that markets are efficient and mistakes are impossible here: However, this so-called "balance weight hypothesis" was only shown with a theoretical model and not in a practical experiment. Arrow/Surowiecki: in his theoretical model, buyers and sellers have extensive knowledge. >Markets/Surowiecki. Vernon L. Smith's study of his first classroom experiment is "An Experimental Study of Competitive Behavior", Journal of Political Economy 70/1962, pp. 111-137, and many of the articles he has published on this subject over the years are collected in two volumes: Smith, Papers in Experimental Economics (Cambridge University Press, Cambridge 1991); and Smith, Bargaining and Market Behavior (Cambridge University Press, Cambridge 2000). |
EconSmith I Adam Smith The Theory of Moral Sentiments London 2010 EconSmithV I Vernon L. Smith Rationality in Economics: Constructivist and Ecological Forms Cambridge 2009 Surowi I James Surowiecki Die Weisheit der Vielen: Warum Gruppen klüger sind als Einzelne und wie wir das kollektive Wissen für unser wirtschaftliches, soziales und politisches Handeln nutzen können München 2005 |
| Moral Hazard | Arrow | Henderson I 56 Moral hazard/Arrow/Demsetz/DemsetzVsArrow/Henderson/Globerman: Moral hazard, a term from insurance, refers to the fact that when people are insured against a bad outcome, they make less effort than otherwise to avoid that bad outcome. When moral hazard arises in insurance markets, argued Arrow(1), insurance is "incomplete." Certain things are left uninsured. Demsetz didn't challenge the fact of moral hazard - it is a well-known problem. What he pointed out, though, is that moral hazard is a cost of providing insurance and therefore should be treated like any other cost. Moral hazard/Demsetz: Moral hazard, he wrote, "is not different from the cost that arises from the tendency of men to shirk when their employer is not watching them" (1969(2): 7). He also compared the moral hazard problem to the problem posed by the cost of mining iron ore: Some iron ore is left unearthed because it is too costly to bring to the surface. But we do not claim ore mining is ineffcient merely because mining is not "complete." Some risks are left uninsured because the cost of moral hazard is too great and this may mean that self-insurance is economic. DemsetzVsArrow: Arrow has fallen prey once again to the "free lunch fallacy." >Nirvana fallacy/Demsetz, >Free lunch/Demsetz. Henderson I 57 ArrowVsDemsetz/Henderson: Of course, Arrow could point correctly to the fact that if insurance did not tempt people to 9underinvest in care, there would not be a problem. DemsetzVsArrow: But then, noted Demsetz, Arrow's reasoning would be committing the "people could be different fallacy." >Free Market/Demsetz. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). 2. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22. |
EconArrow I Kenneth J. Arrow Social Choice and Individual Values: Third Edition New Haven 2012 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Nirvana Fallacy | Demsetz | Henderson I 53 Nirvana fallacy/Demsetz/Henderson/Globerman: The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing "imperfect" institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements. The nirvana approach is much more susceptible than is the comparative institution approach to three logical fallacies - the grass is always greener fallacy, - the fallacy of the free lunch, and - the people could be different fallacy.(1) Henderson: In the now-famous article quoted above, Harold Demsetz, (…) presented the "nirvana approach" and contrasted it with the "comparative institution" approach. His term "the nirvana approach" has become famous and most economists Who discuss it currently refer to it as the "nirvana fallacy." The latter term has become so well known that it has earned its own entry in Wikipedia. (Wikipedia even got it right.) DemsetzVsArrow: In his 1969 article(1) laying out the problem with the nirvana approach, Demsetz criticized at length a 1962 publication by Kenneth Arrow(2), who later won the Nobel Prize in economics. Invention/Arrow: Arrow had argued that a free-enterprise economy would underinvest in invention. Arrow then stated the conclusion that he thought followed: „The previous discussion leads to the conclusion that for optimal allocation to invention it would be necessary for the government or some other agency not governed by profit-and-loss criteria to finance research and invention.“ (Demsetz, 1969)(1). DemsetzVsArrrow: After quoting that statement, Demsetz pointed out the key problem: Arrow didn't carefully examine how "the government or some other agency" would solve the problem. He just assumed that it would. Here's how Demsetz put it: „Whether the free enterprise solution can be improved upon by the substitution of the government or other nonprofit institutions in the financing of research cannot be ascertained solely by examining the free enterprise solution.“ (1969:2)(2). That is like a judge in a figure skating contest between two contestants seeing the first contestant's performance and then, on that basis alone, awarding the prize to the (unseen) second contestant. Grass is alway greener fallacy: This, Demsetz noted, is "the grass is always greener" fallacy. We can't know whether the grass on the other side ofthe fence is greener without examining it. Demsetz did acknowledge that in the last few paragraphs of his paper, Arrow "does discuss some problems in substituting the government for the market.” But, Demsetz noted, this does not lead Arrow “to reconsider his allegation of inefficiency in the market.” >Free lunch/Demsetz. Henderson I 54 Comparisons/DemsetzVsArrow: We can’t say that a situation is inefficient if the other likely alternatives to it are not more efficient and could be less efficient. It’s a matter for comparison: thus, his term for his preferred approach is “comparative institutions.” Henderson: The question Demsetz always asks is: What institutions get us closest to the desirable outcome? >Institutions, >Comparisons, >Comparability. 1. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22. 2. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). |
EconDems I Harold Demsetz Toward a theory of property rights 1967 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Political Economy | Rawls | I 259 Political economy/Rawls: by this I mean economic arrangements and political arrangements as well as the background institutions that are related to them. Welfare economics/K. J. Arrow/Rawls: Defines welfare economics in a similar way(1)(2)(3). Welfare/Rawls: I do not use this expression because it is reminiscent of utilitarianism. (RawlsVsUtilitarianism). >Utilitarianism, >Welfare economics, >Welfare state. The theory of justice as fairness treats social forms as closed systems. An economic system is also shaped by existing needs and necessities. The current cooperation between people in meeting these needs affects the way in which the needs of the future will look. These things are known and shared by such diverse authors as Marx and Marshall(4) >Fairness/Rawls, >Society/Rawls. I 260 Social order/Rawls: Problem: how does this reciprocal influence of needs, satisfaction and new needs in the initial situation of a society to be established, where people stand behind a veil of ignorance in relation to their future position, affect the possible shaping? Solution: only the most general assumptions about primary public goods (e. g. freedoms) are made. >Veil of ignorance. I 263 Economy/disagreement/RawlsVsArrow, K. J/Rawls: different from what K. J. Arrow(5) assumes, disagreement between parties is not a particular feature of idealism. In contract theory, it is part of the initial situation of a society to be established. It forms the content of the theory of justice as fairness. It tries to combine Kant's concept of the realm of purposes with that of autonomy and the categorical imperative. In this way, we can avoid metaphysical assumptions. >Contract Theory, >Purposes/Kant, >J.K. Arrow. 1. See K. J. Arrow and Tibor Scitovsky, Readings in Welfare, Homewood, 1969, p. 1. 2. A. Bergson, essays in Normative Economics, Cambridge, MA, 1966, pp 35-39,60-63,68f. 3. Amartya Sen, Collective Choice and Social Welfare, San Francisco, 1970, pp. 56-59. 4. See Brian Barry, Political Argument, London, 1965. 5. K. J. Arrow, Social Choice and Individual Values 2nd. Ed. New York, 1963, pp. 74f, 81-86. |
Rawl I J. Rawls A Theory of Justice: Original Edition Oxford 2005 |
| Risk Aversion | Arrow | Henderson I 55 Risk aversion/DemsetzVsArrow/Demsetz/ Henderson/Globerman: Arrow: Even if there were commodity-options, argued Arrow, the free market would still underinvest in information. Arrow gave two reasons: risk aversion and moral hazard. >Risk aversion, >Moral hazard, >Free-rider problem. DemsetzVsArrrow: Demsetz(2) pointed out the “people could be different” fallacy in each. Henderson I 56 If people are risk averse, noted Demsetz, then “the taste for risk reduction must be incorporated into the concept of efficiency.” Risk is something that people, all else equal, would like to avoid. >Risks, >Efficiency, >Moral hazard/Demsetz. Henderson I 57 Public/private sector/Demsetz: Moreover, Demsetz noted, government offcials are often much more risk-averse than are businesses in the private sector. He pointed out that creating a better postal service "seems to be technologically possible and economically promising." But because politicians are "very averse to the risk of being voted out of offce" they hold back on improvements that might lead to layoffs of postal employees. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). 2. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22. |
EconArrow I Kenneth J. Arrow Social Choice and Individual Values: Third Edition New Haven 2012 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Risk Aversion | Demsetz | Henderson I 55 Risk aversion/DemsetzVsArrow/Demsetz/Henderson/Globerman: Arrow: Even if there were commodity-options, argued Arrow, the free market would still underinvest in information. Arrow gave two reasons: risk aversion and moral hazard. >Risk aversion, >Moral hazard, >Free-rider problem. DemsetzVsArrrow: Demsetz(2) pointed out the “people could be different” fallacy in each. Henderson I 56 If people are risk averse, noted Demsetz, then “the taste for risk reduction must be incorporated into the concept of efficiency.” Risk is something that people, all else equal, would like to avoid. >Risks, >Efficiency, >Moral hazard/Demsetz. Henderson I 57 Public/private sector/Demsetz: Moreover, Demsetz noted, government offcials are often much more risk-averse than are businesses in the private sector. He pointed out that creating a better postal service "seems to be technologically possible and economically promising." But because politicians are "very averse to the risk of being voted out of offce" they hold back on improvements that might lead to layoffs of postal employees. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). 2. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22. |
EconDems I Harold Demsetz Toward a theory of property rights 1967 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
| Risks | Arrow | Henderson I 54 Risks/inventions/Arrow/Henderson/Globerman: Arrow(1) argued that for private enterprise to yield optimal invention, there must be "commodity-options" so that inventors can redirect risk to other people who are willing to bear it.* Arrow wrote that a commodity-option is a contract "in which buyers pay an agreed sum and sellers agree to deliver prescribed quantities of a given commodity if a certain state of nature prevails and nothing ifthat state of nature does not occur". Arrow argued that "the real economic system does not possess markets for commodity-options" (1962(1): 610-611). For DemsetzVsArrow see >Free Lunch/Demsetz, >Nirvany fallacy/Demsetz. * The idea here is that because not all People have the same attitude to risk, it makes sense for those who are more risk averse to pay less risk averse People for bearing risk. Commodity-options achieve that transfer of risk. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). Mause I 168 Risks/Insurance Markets/Information/Information Markets/Arrow: (1) Def Negative selection/adverse selection: is when an insurance company no longer offers certain insurance policies because the risks to be insured are too high. Example: Conscientious customers can also no longer acquire certain insurance policies, ultimately because of the behavior of other customers. >Insurance, >Information/Economic Theories, >Information Economics, >Adverse Selection. 1. K. J. Arrow, The economics of agency. In Principals and agents: The structure of business, Hrsg. John W. Pratt und Richard J. Zeckhauser, S. 37– 51. Boston 1985. |
EconArrow I Kenneth J. Arrow Social Choice and Individual Values: Third Edition New Haven 2012 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
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