Kenneth Arrow and the New Institutional Economics

Abstract

Kenneth Arrow’s impeccable credentials as an economic theorist are celebrated in the 1972 Nobel Prize in Economics. Research in general equilibrium and social choice was massively reshaped by his original contributions. It is also well recognized that Arrow is much more than a virtuoso mathematical economist. His contributions to welfare economics include both theoretical and applied aspects. His studies of market and non-market organization include applications as well as pure theory. His interests in studying economic organization in a ‘rational spirit’1 have helped to demonstrate the unity between market and non-market modes.2 What is less widely remarked is that Arrow’s contributions to the study of complex economic organization have been very influential in helping to shape the New Institutional Economics (NIE).

Kenneth Arrow’s remarkable written accomplishments are a matter of record. Less easily displayed for the public record is the generous support he accords to the work of others. Given his insatiable curiosity and catholicity, there is almost no issue of interest to others to which Ken does not quickly relate. However arcane the subject, he has often already given it thought. But whether he has or not, he engages the issues on their terms and with an affirmative predisposition. Tentative and vulnerable ideas that would otherwise abort are often salvaged in the process. Deeper understanding drives the inquiry, and deeper understanding invariably results.