"To conclude, I argue that the government should not display risk aversion in its behavior. Hence, the proper procedure is to compute the expected values of benefits and costs, and discount them at a riskless rate, contrary to the view of Hirshleifer (1964, p. 85). Suppose the future to be unknown; it is known that one of a set of states will prevail, and their probabilities are known (or believed in). A given state means a complete description of all production possibilities, so that all uncertainties are resolved when the state is known. To summarize some earlier discussions (Arrow, 1964b; Deberu, 1959, chap 7; Hrishleifer, 1964, pp. 80-85), we can achieve an optimal allocation if we imagine markets in all possible commodity-options, a commodity-option being an obligation to deliver a fixed amount of a given commodity if, and only if, a given state prevails."
Quote Details
Added by wikiquote-import-bot
Unverified quote
0 likes
Academics from the United StatesPeople from New York CityMathematicians from the United StatesEconomists from the United StatesNobel laureates in Economics
Original Language: English
Available Languages (1)
Sources
"Discounting and Public Investment Criteria", in A. V. Kneese and S. C. Smith (ed.) Water Research (1966)
https://en.wikiquote.org/wiki/Kenneth_Arrow
Revision History
No revisions have been submitted for this quote.
Categories
Kenneth Arrow
Kenneth Joseph Arrow (August 23, 1921 – February 21, 2017) was an American economist, who was Professor Emeritus of Economics in Stanford, and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972.
151 quotes on TrueQuotesView all quotes by Kenneth Arrow →
Related Quotes
"There is no need to enlarge upon the importance of a realistic theory explaining how individuals choose among alterna…"
"Among economic phenomena which have in some way been tied up with the existence of uncertainty, three classes may be …"
"The businessman may be compared with two other types of individuals who are essentially concerned with behavior under…"
"Traditional welfare economics shows that there are certain of these combinations that will be preferred by all the vo…"
"In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically us…"
"Ever since I encountered Hicks’s Value and Capital while I was still a graduate student, I had the aim of completing …"
"L. Walras first formulated the state of the economic system at any point of time as the solution of a system of simul…"
"Perhaps as important is the relation between the existence of solutions to a competitive equilibrium and the problems…"
"The government may be regarded as a decision-making entity. Among the decisions it makes are the formation of economi…"
"The terms of trade with the outside world should not be regarded as freely given to the firm. In a world with a large…"