Taking Pure Theory to Data: Arrow’s Seminal Contribution

Abstract

It is sometimes thought that the Arrow-Debreu model is a strange if not dubious starting point for empirical work. This short note honouring Arrow’s (1953) seminal contribution takes the opposite point of view. It argues that the Arrow-Debreu model is rich in empirical implications, both directly, on its own, and indirectly, as the fountainhead of contributions that seek to explain otherwise anomalous observations.

As will have become evident, Arrow’s work has had a deep influence on my own research. In fact, a more personal interpretation of this chapter is that it documents that influence, hence the frequent references to my own work.