Representative Agent Model, Social Welfare Function and Arrow Impossibility Theorem: A Reflection on Microfoundations for
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| Title | Representative Agent Model, Social Welfare Function and Arrow Impossibility Theorem: A Reflection on Microfoundations for
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| Author | Xu Jianming and Li Wenpu |
| Organization | China Institute for Rural Studies, Tsinghua University；Center for Macroeconomic Research of Xiamen University |
| Email | zm3809@sina.com；wpli@xmu.edu.cn |
| Key Words | Representative Agent Model；Macroeconomics as Science；Social Welfare Function；Arrow Impossibility Theorem；Social Choice (Contract) |
| Abstract | The microfoundations for macroeconomics as science have been strengthened after the “Lucas critique”, nearly in the past forty years. Its widespread practice is the representative model that a typical individual’s utility function as an alternative to social welfare function of a country. This means that the implied presupposition of representative model is existence of social welfare function. But according Arrow impossibility theorem, under normal conditions it does not exist social welfare function in logic. So we need to reconsider microfoundations for macroeconomics as science. In fact, it is the conclusion proved by Arrow impossibility theorem that it does not exist the totalitarianism social welfare function which does everything. The formation of the public organizations through the freedom of social contract, various corresponding social welfare functions can exist in logic. The institutional background of representative model that construct the theoretical system of modern macroeconomics being established in science is the society which a free market economy and a variety of public organization though free contracts. |
| Serial Number | WP967 |
| Time | 2015-12-01 |
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