How mathematical impossibility changed welfare economics: A history of Arrow's impossibility theorem

Abstract

During the 20th century, impossibility theorems have become an important part of mathematics. Arrow's impossibility theorem (1950) stands out as one of the first impossibility theorems outside of pure mathematics. It states that it is impossible to design a welfare function (or a voting method) that satisfies some rather innocent looking requirements. Arrow's theorem became the starting point of social choice theory that has had a great impact on welfare economics. This paper will analyze the history of Arrow's impossibility theorem in its mathematical and economic contexts. It will be argued that Arrow made a radical change of the mathematical model of welfare economics by connecting it to the theory of voting and that this change was preconditioned by his deep knowledge of the modern axiomatic approach to mathematics and logic.