Uncertainty, information, and communication Essays in honor of Kenneth J. Arrow, Volume III Uncertainty, information, and communication Essays in honor of Kenneth J. Arrow, Volume III Edited by WALTER P. HELLER University of California, San Diego ROSS M. STARR University of California, San Diego DAVID A. STARRETT Stanford University Ther iKlortft he Un·,i,rsiotfyC ambridttt top rinatn ds t/I oil manneorf bo oks wasg ranubdy HenryVI II in 153-1. Tltt Unirershiatspy r inted andp ublisclornttdi nuously sinc15e8 4. CAMBRIDGE UNIVERSITY PRESS Cambridge London New York New Rochelle Melbourne Sydney CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521327046 Cambridge University Press 1986 © This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 1986 This digitally printed version 2008 A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data Uncertainty, information, and communication. (Essays in honor of Kenneth J. Arrow; v. 3) Bibliography: p. 1. Social choice. 2. Decision-making. 3. Equilibrium (Economics) 4. Uncertainty. 5. Arrow, Kenneth Joseph, 1921-. I. Heller, Walter P. II. Starr, Ross M. III. Starrett, David A. IV. Arrow, Kenneth Joseph, 1921-. V. Series. HB846.8.U53 1986 330 86-11756 ISBN 978-0-521-32704-6 hardback ISBN 978-0-521-06386-9 paperback Contents Essays in honor of Kenneth J. Arrow, Volumes I, II, III Volume Social choice and public decision making I PART I SOCIAL CHOICE Consequentialist social norms for public decisions Peter J. Hammond 2 Information and invariance in normative choice Amartya Sen 3 Utilitarian morality in a world of very half-hearted altruists John Harsanyi C. 4 On the implementation of social choice rules in irrational societies Leonid Hurwicz 5 Walrasian social choice: some simple axiomatic approaches Louis Gevers PART II DECISION MAKING IN THE PUBLIC SECTOR 6 Testing for optimality in the absence of convexity Herbert E. Scarf 7 Toward a theory of planning Michael D. /ntriligator and Eytan Sheshinski 8 On the social risk premium David A. Starrett 9 A problem of financial market equilibrium when the timing of tax payments is indeterminate David F. Bradford 10 The shadow price of capital: implications for the opportunity cost of public programs, the burden of the debt, and tax reform Robert Lind C. Volume Equilibrium analysis II PART I GENERAL EQUILIBRIUM A general equilibrium theory of North-South trade Graciela Chichilnisky v vi Contents of Volumes I, II, III 2 Soldiers of fortune? Theodore Bergstrom The dynamics of industrywide learning 3 Nancy L. Stokey 4 Decentralized trade in a credit economy Ross M. Starr 5 Lump-sum taxes and transfers: public debt in the overlapping-generations model Yves Balasko and Karl Shell 6 Coordination failure under complete markets with applications to effective demand Walter P. Heller PART II MICROFOUNDATIONS OF MACROECONOMICS 7 Price flexibility, inventory behavior, and production responses Heinz Koenig and Marc Nerlove 8 On asymmetric information, unemployment, and inflexible wages Mordecai Kurz 9 Asymmetric adjustment costs and sectoral shifts Laurence Weiss IO Implicit contracts and risk aversion Takatoshi Ito 11 An exercise in non-Walrasian analysis Frank Hahn 12 Monopolistic competition and the multiplier Robert M. Solow Volume III Uncertainty, information, and communication PART I UNCERTAINTY Negotiation in games: a theoretical overview Roger B. Myerson 2 Repeated moral hazard with low discount rates Roy Radner 3 Existence, regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete John D. Geanakoplos and Heraklis M. Polemarchakis 4 Asset pricing theories Michael Rothschild Contents of Volumes I, II, III vii 5 Independence versus dominance in personal probability axioms Thomas Marschak 6 Univariate and multivariate comparisons of risk aversion: a new approach Menahem E. Yaari PART II INFORMATION, COMMUNICATION, AND ORGANIZATION 7 The cost of communication in economic organization: II Hajime Oniki 8 Assembling efficient organizations? W. M. Gorman 9 Optimal Bayesian mechanisms Eric S. Maskin 10 Incentive theory with data compression Jerry R. Green and Jean-Jacques Lajfont 11 Alternative limited communication systems: centralization versus interchange of information Jerry R. Green and Jean-Jacques Lajfont Contributors Yves Balasko Takatoshi Ito Universite de Geneve University of Minnesota Theodore Bergstrom Heinz Koenig University of Michigan University of Mannheim David F. Bradford Mordecai Kurz Woodrow Wilson School of Public Stanford University and International Affairs Jean-Jacques Laffont* Princeton University Universite des Sciences Sociales Graciela Chichilnisky Toulouse Columbia University Robert C. Lind John D. Geanakoplos* Cornell University Yale University Thomas Marschak* Louis Gevers University of California, Berkeley Faculte Notre Dame de la Paix Namur, Belgium Eric S. Maskin* Harvard University W. M. Gorman* Nuffield College Roger B. Myerson* Oxford Northwestern University Jerry R. Green* Marc Nerlove Harvard University University of Pennsylvania Frank Hahn Hajime Oniki* Churchill College Osaka University Cambridge Heraklis M. Polemarchakis* Peter J. Hammond Columbia University Stanford University Roy Radner* John C. Harsanyi AT&T Bell Laboratories University of California, Berkeley Michael Rothschild* Walter P. Heller University of California, San Diego University of California, San Diego Herbert E. Scarf Leonid Hurwicz Yale University University of Minnesota Amartya Sen Michael D. Intriligator All Souls College University of California, Los Angeles Oxford *Contributors to Volume III. ix x Contributors Karl Shell David A. Starrett University of Pennsylvania Stanford University Eytan Sheshinski Nancy L. Stokey Hebrew University Northwestern University Jerusalem Laurence Weiss Robert M. Solow University of California, San Diego Massachusetts Institute of Technology Menahem E. Yaari* Ross M. Starr Hebrew University University of California, San Diego Jerusalem