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A Critical Survey of J.K. Arrow's Theory ofKnowledge

Listed author(s):
  • Mehrdad Vahabi

[eng] The great challenge for neoclassical paradigms is whether its methodological individualism is capable of coming to grips with the collective or social nature of information. Arrow's subtle observation regarding the increasing returns to communication is one of those peculiarities which contradicts the concept of scarcity of information. Bounded rationality is another example. While remaining faithful to methodological individualism of standard economic theory, Arrow describes information as a specific non-ordinary commodity, revealing the limits of imperfections of market and entering into the general category of externalities. He sets forth some fundamental principles of the economics of information and the new microeconomics by focusing on issues such as information gathering, communication efficiency, and transmission costs in deciding among forms of economic organization. In our critical review of Arrow's theory of information, we endeavor to show that despite its great achievements, this theory does not capture the tacit, institutionalized, unexpected, and non-rational dimensions of knowledge. The organizational or corporate culture cannot be derived from market failure. It is the direct outcome of internal organization of the firm and other social networks, and thus closely related to learned and transmitted knowledge in a group context. [fre] La grande interrogation portant sur les paradigmes néoclassiques consiste à examiner si l'approche en termes d'individualisme méthodologique est susceptible de prendre en compte la nature collective ou sociale de l'information. L'observation subtile de Arrow concernant les rendements croissants liés à la communication établit une des particularités incompatibles avec la notion de rareté de l'information. La rationalité limitée en fournit un autre exemple. Sans se départir de l'individualisme méthodologique de la théorie économique standard, Arrow décrit l'information comme un bien spécifique non ordinaire, qui révèle les limites ou les imperfections du marché et rentre dans la catégorie générale des externalités. Arrow expose certains principes fondamentaux de l'économie de l'information et de la nouvelle microéconomie dans son traitement des thèmes comme la collecte de l'information, l'efficacité communicationnelle, et les coûts de transmission attachés aux choix des différentes formes d'organisation économique. Dans notre revue critique de la théorie de l'information chez Arrow, nous tentons de montrer qu'en dépit de ses apports importants, cette théorie ne capte guère les dimensions tacites, institutionnelles, inattendues et non rationnelles de la connaissance. La culture organisationnelle ou corporatiste ne peut être expliquée par les défaillances du marché. Cette culture collective est le résultat direct de l'organisation interne à la firme et aux autres réseaux sociaux, et conséquem- ment, étroitement liée à la connaissance acquise et transmise dans et par un contexte social.

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Article provided by Programme National Persée in its journal Cahiers d'économie politique.

Volume (Year): 29 (1997)
Issue (Month): 1 ()
Pages: 35-65

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Handle: RePEc:prs:caecpo:cep_0154-8344_1997_num_29_1_1208
Note: DOI:10.3406/cep.1997.1208
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  1. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  2. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-368, June.
  3. Denzau, Arthur T & North, Douglass C, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31.
  4. Langlois, Richard N., 1983. "Internal Organization In a Dynamic Context: Some Theoretical Considerations," Working Papers 83-04, C.V. Starr Center for Applied Economics, New York University.
  5. Arrow, Kenneth J, 1969. "Classificatory Notes on the Production and Transmission of Technological Knowledge," American Economic Review, American Economic Association, vol. 59(2), pages 29-35, May.
  6. Nelson, Richard R & Winter, Sidney G, 1980. "Firm and Industry Response to Changed Market Conditions: An Evolutionary Approach," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 179-202, April.
  7. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-1171, September.
  8. Arrow, Kenneth J, 1991. "Scale Returns in Communication and Elite Control of Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 1-6, Special I.
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