Economic theorems are fundamental propositions or principles in economics that are derived from a set of assumptions and are supported by logical reasoning or empirical evidence. These theorems provide insights into how economic agents behave, how markets function, and how various economic phenomena are interrelated.
Arrow's impossibility theorem, formulated by economist Kenneth Arrow in his 1951 work "Social Choice and Individual Values," addresses the challenges of aggregating individual preferences into a collective decision or social welfare function. The theorem states that no voting system can convert individual preferences into a collective outcome that satisfies a specific set of reasonable criteria at the same time.
Aumann's Agreement Theorem, proposed by Robert Aumann in 1976, is a result in the field of Bayesian epistemology that addresses the conditions under which two rational agents with common prior beliefs can have common knowledge of their respective beliefs and still agree to disagree about a given proposition. The theorem states that if two agents have a common prior probability distribution over a set of possible states of the world, and they are both rational (i.e.
The Bondareva–Shapley theorem is a result in cooperative game theory that provides a characterization of the core of cooperative games. This theorem effectively gives conditions under which the core of a cooperative game is non-empty. Specifically, the theorem states that a cooperative game has a non-empty core if and only if the game is balanced.
The Coase theorem, named after economist Ronald Coase, is a concept in economics that addresses the issue of externalities and property rights. It states that, under certain conditions, if property rights are well-defined and transaction costs are low or nonexistent, private parties can negotiate mutually beneficial agreements to resolve externalities on their own, regardless of the initial allocation of property rights.
Debreu's representation theorems refer to results in mathematical economics developed by Gérard Debreu, particularly concerning the representation of preferences, utility functions, and their relation to general equilibrium theory.
The Dorfman–Steiner theorem is an important result in the field of operations research and convex analysis, particularly in the study of optimal policy and control systems. It provides a way to understand the conditions under which certain policies are effective. Specifically, the theorem characterizes the optimal policies in the context of dynamic programming and resource allocation problems.
The Duggan–Schwartz theorem is a result in the field of social choice theory, specifically concerning the aggregation of preferences in social welfare functions. It addresses the impossibility of certain desirable properties in the context of collective decision-making. In its essence, the theorem states that under certain conditions, it is impossible to create a social welfare function that satisfies all of the following criteria: 1. **Unrestricted Domain:** Any individual preference order can be taken as input.
Edgeworth's limit theorem is a result in probability theory and statistics that relates to the asymptotic distribution of sample averages. Specifically, it provides insight into the behavior of the distribution of sample means as the sample size increases, particularly when the underlying distribution of the population is not normally distributed. The theorem states that under certain conditions, the distribution of the sample mean can be approximated by a normal distribution, but it goes a step further by describing the nature of the convergence.
Efficient envy-free division refers to a method of dividing a resource (which could be anything from land, goods, or any divisible items) among multiple individuals in such a way that: 1. **Envy-free**: Each participant feels they received at least as much value as anyone else. In other words, no one envies another's share; they believe their own share is at least as good as the shares of others.
The Envelope Theorem is a concept in economics, particularly in the fields of optimization and comparative statics. It describes how the value of an optimal objective function changes with respect to changes in parameters of the model. The fundamental idea is that when evaluating the impact of a change in parameters on the optimal value of the objective function, we can typically simplify the analysis by looking at the optimal solution without needing to find the explicit form of the solution again.
Factor price equalization is an economic theory that is part of the Heckscher-Ohlin model of international trade. It suggests that if countries engage in free trade, the prices of factors of production (such as labor and capital) will tend to equalize across countries, under certain conditions. This occurs as countries specialize in the production of goods that utilize their abundant factors of production more intensively.
The Fisher Separation Theorem is a fundamental principle in finance and investment theory attributed to economist Irving Fisher. It states that under certain conditions, a firm's investment decisions and its financing decisions can be separated without affecting the overall value of the firm. ### Key Points of the Fisher Separation Theorem: 1. **Investment and Consumption**: The theorem emphasizes that a firm (or investor) can choose the optimal investment project based purely on its expected return, independent of the financing method used to fund that project.
The Fundamental Theorems of Welfare Economics consist of two key results that connect the allocation of resources in a market economy with the concepts of efficiency and optimality. These theorems provide a theoretical foundation for understanding how competitive markets operate and under what conditions they lead to socially desirable outcomes.
Gibbard's theorem is a fundamental result in social choice theory that addresses the issues of strategic voting in the context of ranked voting systems. More specifically, it states that any non-dictatorial voting system that can select one winner from a set of three or more candidates is susceptible to strategic manipulation.
The Gibbard–Satterthwaite theorem is a fundamental result in social choice theory and mechanism design that addresses the limitations of voting systems. It states that any voting rule (or voting mechanism) that satisfies certain reasonable conditions is susceptible to strategic manipulation, meaning that voters can gain by misrepresenting their true preferences.
The Heckscher–Ohlin theorem is a fundamental concept in international trade theory that explains how countries engage in trade based on their factor endowments. It was developed by economists Eli Heckscher and Bertil Ohlin in the early 20th century. The theorem posits that: 1. **Factor Proportions**: Different countries have different relative supplies of factors of production, such as labor, land, and capital. These differences lead to variations in production costs and capacities.
The Henry George theorem is a concept in public finance and urban economics, named after the American economist Henry George. The theorem addresses the relationship between land values, public infrastructure investments, and the benefits received from those investments by property owners. In essence, the Henry George theorem posits that the increase in land value resulting from public investments (such as the construction of roads, parks, schools, and other public facilities) can be captured through taxation.
Holmström's theorem, named after the economist Bengt Holmström, is a result in the field of contract theory. It revolves around the design of contracts in situations where there is asymmetric information, specifically regarding effort or actions taken by agents that cannot be perfectly observed by the principal. The key insights from Holmström's theorem are: 1. **Incentive Compatibility**: The theorem underscores the importance of designing contracts that provide the right incentives for agents (e.g.
Intensity of preference refers to the strength or degree of an individual's preference for one option over another. It is a concept often used in economics, psychology, and decision-making studies to understand how much more someone prefers one choice compared to alternatives. For example, if a person prefers chocolate ice cream over vanilla ice cream, the intensity of that preference can vary.
The Lerner symmetry theorem, often associated with the economist Abba Lerner, relates to the behavior of taxes and subsidies in an economy. The theorem posits that under certain conditions, the effects of a tax and a subsidy on output can be considered symmetrical. In other words, if a good is taxed, removing the tax (or replacing it with a subsidy) leads to similar effects on the quantity produced and consumed, though the sign of the effect is reversed.
The Liberal Paradox, formulated by economist Amartya Sen, highlights a conflict between individual freedoms and collective societal welfare within the context of liberalism. It addresses the tension between two fundamental principles: 1. **Individual Liberty**: The notion that individuals should have the freedom to pursue their own interests and make choices without coercion. 2. **Pareto Efficiency**: The idea that a situation is Pareto efficient if no individual's situation can be improved without worsening someone else's situation.
The Moving Equilibrium Theorem is not a widely recognized term in standard scientific or mathematical literature. However, it might refer to concepts in dynamic systems or various fields such as economics, physics, or ecology, where equilibrium states and their dynamics are studied. In a more general sense, equilibrium refers to a state in which all forces are balanced, and there is no net change in a system. A "moving equilibrium" could involve scenarios where the system dynamically adjusts to maintain balance despite external changes.
The Nakamura number is a concept used in mathematics, particularly in the study of large numbers and combinatorial game theory. Specifically, it refers to a sequence of extremely large numbers that arise in the context of certain games, often involving infinite moves or game positions. The Nakamura numbers are typically denoted as \(N(n)\), where \(n\) indicates the position in the sequence.
Okishio's theorem is an economic theorem proposed by the Japanese economist Yoshio Okishio in the 1960s. The theorem addresses the relationship between technological change, the rate of profit, and the value of goods in a capitalist economy. It specifically concerns the effects of technical progress on the profitability of firms.
Roy's identity is a result in the theory of statistical inference, particularly in the context of Bayesian analysis. It relates the posterior distribution of a parameter of interest given observed data to the prior distribution and the likelihood of the data observed.
The Rybczynski theorem is an important concept in international trade theory, particularly in the context of the Heckscher-Ohlin model. It addresses how changes in the endowments of factors of production (such as labor and capital) affect the output of goods in an economy.
Shephard's lemma is a concept in economic theory, particularly in the field of duality in consumer theory and production theory. It is named after David Shephard, who contributed significantly to the study of production functions and efficiency. The lemma states that the derivative of the value function of a cost minimization problem with respect to a factor price gives the corresponding input demand for that factor, assuming that the production frontier exhibits certain regularity conditions.
The Sonnenschein–Mantel–Debreu theorem is a foundational result in general equilibrium theory in economics. It addresses the relationship between individual preferences and market demand in an economy composed of many agents with potentially diverse preferences. The theorem can be summarized in the following points: 1. **Market Demand Aggregation**: The theorem shows that the aggregate demand for goods in a market can be inconsistent with the preferences of the individual consumers.
The Stolper-Samuelson theorem is a key result in international trade theory, which explains the relationship between trade, factor prices, and income distribution within a country. Named after economists Wolfgang Stolper and Paul Samuelson, who presented it in 1941, the theorem is often discussed in the context of the Heckscher-Ohlin model of international trade.
Topkis's theorem, named after Howard Topkis, is a result in the field of optimization and control theory, particularly concerning monotonic systems. The theorem provides conditions under which the optimal solutions of a dynamic programming problem are ordered in a certain way when the cost function is monotonic. Specifically, Topkis's theorem states that if the cost function is increasing in the state variable and the control variable, then the optimal value function will also be increasing.
The Utility Representation Theorem is a fundamental concept in decision theory and economics that relates to how preferences can be represented mathematically. The theorem establishes that if a decision-maker's preferences satisfy certain conditions, they can be represented using a utility function. Here are the core ideas surrounding the Utility Representation Theorem: 1. **Preferences**: The theorem begins with the notion of preferences, which are the choices individuals make among different options based on their perceived satisfaction or utility.
Uzawa's theorem, also known in the context of economics, particularly pertains to optimal growth models and is named after the economist Hirofumi Uzawa. It provides conditions under which an economy can achieve a dynamic equilibrium while maximizing utility over time, often in the context of intertemporal choice and resource allocation. In its most common formulation, Uzawa's theorem is discussed in relation to the optimal growth problem in economics, specifically the Ramsey model.
Weller's theorem, particularly in the context of number theory, is a result related to the distribution of prime numbers in certain arithmetic progressions. It essentially provides a criterion for determining when a prime number will be found in a given arithmetic sequence.
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