Introduction. The interpretation that Arrow’s Condition I, independence of irrelevant alternatives, prohibits the use of individuals’ intensities of preference in the construction of social choices, is not precise. Rather, it is the social welfare function (as defined in Chapter 4), which demands both individual and social orderings, and thereby prohibits cardinal utility inputs. Condition I, a...

Prediction markets have demonstrated their value for aggregating collective expertise [Arrow et al. 2008]. Combinatorial prediction markets allow forecasts not only on base events, but also on conditional and/or Boolean combinations of events [Hanson 2007]. We describe a trade-based combinatorial prediction market asset management system, called Dynamic Asset Cluster (DAC), that improves both t...

Despite these diffi culties, the need to think about the future of social-ecological systems cannot be avoided. Th e defi nition of sustainability includes the notion of non-decreasing wealth: sustainable policies meet the needs of the present without undermining future generations’ ability to meet their needs (Arrow et al. 2004). Inevitably, environmental actions aff ect future generations as ...

Our goal in this paper is to merge several central ideas in economic theory: strategic behavior (incentive compatibility), differential (or incomplete) information, and the Arrow-Debreu model of general equilibrium. By strategic behavior we refer to the literature which models economic institutions as games in strategic form and uses Nash equilibrium as the solution concept. This literature, mo...

In this paper, we study the problem of implementation of Ross (2015) Recovery theorem to disentangle the pricing kernel and physical probabilities from observed bond yields within discrete time affine term structure models. As a remedy to the problem of obtaining Arrow-Debreu prices of state transitions, we propose Markov chain approximation to autoregressive processes. Our work suggests that a...

We consider a power utility maximization problem with additive habits in a framework of discrete-time markets and random endowments. For certain classes of incomplete markets, we establish estimates for the optimal consumption stream in terms of the aggregate state price density, investigate the asymptotic behavior of the propensity to consume (ratio of the consumption to the wealth), as the in...

In the Arrow-Debreu model of an intertemporal economy with a continuum of agents, suppose that the auctioneer sets prices while the government institutes optimal lump-sum transfers period by period. An earlier paper showed how subgame imperfections arise because agents understand how current decisions such as those determining investment will influence future lump-sum transfers. This observatio...

The hamiltonian of an asymmetric diffusion process with injection and ejection of particles at the ends of a chain of finite length is known to be relevant to that of the spin1 2 XXZ chain with integrable boundary terms. However, the inclusion of boundary sources and sinks of particles breaks the arrow-reversal symmetry necessary for solution via the usual Bethe Ansatz approach. Developments in...

This essay is the second of three. The first is nontechnical and in part autobiograhpical describing the evolution of my approach to developing a micro economic theory of money and financial insttutions. This essay is devoted to a mathematical sketch of a closed economic exchange system with general equilibrium GE and rational expectations RE viewed game theoretically. It squeezes the last drop...

The classic Arrow–Debreu framework requires a very large number of specific securities to reach Pareto optimality. present paper shows that financial intermediation can play an important role in maintaining more parsimonious market while still obtaining In the developed, aggregate risk components individual risks are exchanged through highly reduced set nonspecific securities, idiosyncratic ins...