On the Arrow-Lind theorem (Q1064269): Difference between revisions

The purpose of this paper is to extend in many ways the well-known A-L (Arrow-Lind) theorem on the asymptotic value of an uncertain public project when the benefits and costs of the project are shared among a large number of agents. Suppose that the incomes of all but a finite number of agents are positively (or negatively) dependent on the return from the public project. Then the author shows that as the number of agents increases, both the aggregate sale value and the aggregate purchase value converge to a common value and that this limiting value is less than (or greater than) the expected value of the project; which is the first extension of the A-L theorem. Now assume that the returns on the public project and the incomes of the agents are both influenced by a common random factor such as the business cycle. Then it is shown that the aggregate value of the public project depends not only on whether its returns vary cyclically, but also on the volatility of the business cycle per se; which is the second extension of the A-L theorem. It should be noted that the author's paper is confined to the purely static case. So it remains to be seen how his analysis can be extended to the more attractive case of growth and dynamics.