Kelvin Lancaster
Encyclopedia
Kelvin John Lancaster was a mathematical economist
and John Bates Clark
professor of economics at Columbia University
. He is best known for the development of the Theory of the Second Best
with Richard Lipsey
. Lancaster was also active in developing the calculus of qualitative economics
, formulating the household production function
, and applying the hedonic model to the estimation of the price of houses.
In a 1966 paper, Lancaster developed what he called a "new theory of consumer demand", in which the then standard microeconomic
demand theory
was modified by stipulating that what consumers are seeking to acquire is not goods themselves (e.g. cars or train journeys) but the characteristics they contain (e.g. transport from A to B, display of fashion sense). This theory provides a convenient account of the difference between less developed (Lancaster called them "primitive") consumption economies, in which there are fewer goods than characteristics, and more developed ("sophisticated") consumption economies, in which there are more goods than characteristics, so that consumers can secure any combination of characteristics they desire, subject only to budget constraints. It also provides a way of predicting demand for new commodities, so long as they do not embody any new characteristics.
According to the economist Jagdish Bhagwati
, "He [Kelvin Lancaster] was widely regarded as a potential recipient of the Nobel Prize, for the notable impact that had been made by his contributions to the theory of second best and the integration of variety into economic theory. He joins the list of extraordinary economists such as Joan Robinson, Roy Harrod and Mancur Olson whom death deprived of this singular honor."
Mathematical economics
Mathematical economics is the application of mathematical methods to represent economic theories and analyze problems posed in economics. It allows formulation and derivation of key relationships in a theory with clarity, generality, rigor, and simplicity...
and John Bates Clark
John Bates Clark
John Bates Clark was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career teaching at Columbia University.-Biography:Clark was born and raised in Providence, Rhode...
professor of economics at Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
. He is best known for the development of the Theory of the Second Best
Theory of the Second Best
In welfare economics, the theory of the second best concerns what happens when one or more optimality conditions cannot be satisfied. Canadian economist Richard Lipsey and Australian economist Kelvin Lancaster showed in a 1956 paper that if one optimality condition in an economic model cannot be...
with Richard Lipsey
Richard Lipsey
Richard George Lipsey, OC, FRSC is a Canadian academic and economist. He is best known for his work on the economics of the second-best, a theory of constrained optimization by government of the tax system, which he co-authored with Kelvin Lancaster, a mathematical economist of high...
. Lancaster was also active in developing the calculus of qualitative economics
Qualitative economics
Qualitative economics refers to representation and analysis of information about the direction of change in some economic variable as related to change of some other economic variable...
, formulating the household production function
Household production function
Consumers often choose not directly from the commodities that they purchase but from commodities they transform into goods through a household production function. It is these goods that they value. The idea was originally proposed by Gary Becker, Kelvin Lancaster and Richard Muth in the mid...
, and applying the hedonic model to the estimation of the price of houses.
In a 1966 paper, Lancaster developed what he called a "new theory of consumer demand", in which the then standard microeconomic
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
demand theory
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
was modified by stipulating that what consumers are seeking to acquire is not goods themselves (e.g. cars or train journeys) but the characteristics they contain (e.g. transport from A to B, display of fashion sense). This theory provides a convenient account of the difference between less developed (Lancaster called them "primitive") consumption economies, in which there are fewer goods than characteristics, and more developed ("sophisticated") consumption economies, in which there are more goods than characteristics, so that consumers can secure any combination of characteristics they desire, subject only to budget constraints. It also provides a way of predicting demand for new commodities, so long as they do not embody any new characteristics.
According to the economist Jagdish Bhagwati
Jagdish Bhagwati
Jagdish Natwarlal Bhagwati is an Indian-American economist and professor of economics and law at Columbia University. He is well known for his research in international trade and for his advocacy of free trade....
, "He [Kelvin Lancaster] was widely regarded as a potential recipient of the Nobel Prize, for the notable impact that had been made by his contributions to the theory of second best and the integration of variety into economic theory. He joins the list of extraordinary economists such as Joan Robinson, Roy Harrod and Mancur Olson whom death deprived of this singular honor."
External links
- Obituary in the New York Times.
- Talking About a Revolution by Paul KrugmanPaul KrugmanPaul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...
.