Book contents
- Frontmatter
- Contents of Volumes I, II, III
- List of contributors
- Editors' preface
- Kenneth J. Arrow
- Contents
- PART I UNCERTAINTY
- PART II INFORMATION, COMMUNICATION, AND ORGANIZATION
- 7 The cost of communication in economic organization: II
- 8 Assembling efficient organizations?
- 9 Optimal Bayesian mechanisms
- 10 Incentive theory with data compression
- 11 Alternative limited communication systems: centralization versus interchange of information
- Publications of Kenneth J. Arrow
- Author index
7 - The cost of communication in economic organization: II
Published online by Cambridge University Press: 05 November 2011
- Frontmatter
- Contents of Volumes I, II, III
- List of contributors
- Editors' preface
- Kenneth J. Arrow
- Contents
- PART I UNCERTAINTY
- PART II INFORMATION, COMMUNICATION, AND ORGANIZATION
- 7 The cost of communication in economic organization: II
- 8 Assembling efficient organizations?
- 9 Optimal Bayesian mechanisms
- 10 Incentive theory with data compression
- 11 Alternative limited communication systems: centralization versus interchange of information
- Publications of Kenneth J. Arrow
- Author index
Summary
Introduction
Professor Kenneth Arrow, in his presidential address at the 1973 annual meeting of the American Economic Association, discussed problems in the economics of uncertainty and information. In dealing with the efficiency of the price system, he stated:
In equilibrium, at least, the [market] system as a whole gives the impression of great economy in the handling of information, presumably because transmission of prices is in some significant sense much cheaper than transmission of the whole set of production possibilities and utility functions … But what was left obscure is a more definite measure of information and its costs, in terms of which it would be possible to assert the superiority of the price system over a centralized alternative … if we are going to take informational economy seriously, we have to add to our usual economic calculations an appropriate measure of the costs of information gathering and transmission.
(Arrow 1974a, pp. 4–5)This chapter responds partly to the point raised by Professor Arrow; this is an attempt to find a measure of the cost of internal communication in economic systems.
For the convenience of the reader, we shall first give a brief and informal explanation of this work. We consider the problem of comparing two alternative economic systems, the centralized system and the (decentralized) market mechanism. In this work, each system is composed of a center and agents, the latter being interpreted to be productive firms. In the centralized system, the center may be considered as the planning board of a socialist state, whereas in the market mechanism it is an auctioneer, who runs the system by executing the law of supply and demand.
- Type
- Chapter
- Information
- Essays in Honor of Kenneth J. Arrow , pp. 191 - 212Publisher: Cambridge University PressPrint publication year: 1986