ABSTRACT OF PAPER
Title: Arrow's Contribution to Finance Theory: The Model of Contingent Commodities and its Contexts
Author: Boldyrev Ivan
In this talk, I will contextualize Kenneth Arrow's (1964 [1953]) contribution to the theory of finance. Framed as a refinement of general equilibrium analysis and its extension for the case of uncertainty, a short conference paper of Arrow published originally in French is now sometimes considered as probably ‘the most important paper ever written for financial economics’ (Rubinstein, 2006: 107). I ask why - apart from the obvious limitation related to the language barrier - it did not immediately influence financial economics, what influence it did have and, perhaps, what impact it might have had, were it to be received in the 1950s. I also reconstruct the motivations of Arrow to advance his model, trace his immediate intellectual precursors (such as John Hicks and Leonard Savage) and consider the first reactions to his ideas within the economics profession — coming from Hendrik Houthakker and Jack Hirshleifer.
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