Gerard Debreu
Citation: For having incorporated new analytical methods into economic theory and for his rigorous reformulation of the theory of general equilibrium.
The key idea
The Arrow-Debreu existence proof, in its mathematically definitive form: under specified convexity and continuity conditions, a competitive equilibrium exists.
The explanation
Debreu's Theory of Value (1959) is the most rigorous formulation of general equilibrium theory ever written. He proved the existence of equilibrium using fixed-point theorems, defined goods as date-state contingent (the basis of modern asset pricing), and laid the mathematical foundation for the Second Welfare Theorem.
Why Africa should care
Debreu's state-contingent goods framework is the basis of modern derivatives pricing and is exactly the lens by which African weather-index insurance products are designed. The Arrow-Debreu securities concept underlies climate risk-transfer instruments now being piloted by ACRE Africa and others.
How to use it
When designing risk-transfer products (weather insurance, parametric crop cover, sovereign cat bonds), decompose payoffs into Arrow-Debreu state-claims. The decomposition is the cleanest way to price and to identify hedging instruments.
Canonical works
- Gerard Debreu (1959) "Theory of Value: An Axiomatic Analysis of Economic Equilibrium" Yale University Press
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