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Nobel Prize winner: Hicks/Arrow (Hicks (1904-1989) (Professor University…
Nobel Prize winner: Hicks/Arrow
Hicks (1904-1989)
Professor University of Oxford since 1952
Works: Value and Capital (1939)
Studied at Oxford
Arrow (1921-present)
Stanford University since 1949
Works: Uncertainty and the Welfare Economic of Medical Care (AER; 1963)
Master Columbia uni (1941), Ph.D. Columbia
Nobel Prize in 1972 :
"for their pioneering contributions to general economic equilibrium theory and welfare theory”
Hicks contributions
General equilibrium theory
Substitution and income effects (relation to neoclassical economics)
IS/LM diagram (relation to keynesian economics)
Hicks: General equilibrium theory
Role of prices:
Substitution vs income effects
Complete economic equilibrium model:
Innovations were to increase economic relevance of the model
--> i.e conditions for multimarket stability, multiperiod model, introduction of capital theory based on profit maximization
Hicks: General equilibrium theory
Relation to Walras:
Basics of general equilibrium theory
Hicks modernized and updated this theory
Relation to Marshall:
Concept of consumer surplus
Hicks added income and substitution effects
--> Slutsky (1915)
Hicks: IS/LM
Keynes’s theory of interest rate is indeterminate
National income depends on interest (via investment)
Interest rate depends on income level (via liquidity preference) Solution: IS-LM model
Two equations:
1.National income vs interest rate (IS)
Equilibrium real economy: S=I
National income vs interest rate (LM) Equilibrium in money market: