Kenneth Arrow

Kenneth Joseph Arrow (born August 23, 1921) is an American economist, winner of the 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.

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 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.

Related Topics:
Asymmetric information - Warranties - Authentication

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