| 1 | 2 | 3 | 4 | 5 | 6 |

IN MEMORIAM

Kelvin J. Lancaster, the John Bates Clark Professor of Economics, died on July 23, 1999 at his home in New York. He was 74. Lancaster was a pioneering economic theorist whose writings affected his profession's conceptions of free trade, consumer demand, industrial structure, and regulation, and played a crucial role in shaping government economic policy.

A native of Sydney, Australia, Lancaster was an accomplished athlete, competing vigorously in the lifeguard competitions at Sydney's Bondi Beach. He volunteered for military service in the Royal Australian Air Force in 1943, at age 18. At war's end, he studied geology, mathematics and English at Sydney University, earning a bachelor's in mathematics, a bachelor's and master's in English, and an offer to teach English at the university. Instead, Lancaster accepted a position as an associate at Research Services of Australia, where he eventually became director and developed economic indices still in use in Australia. This research led to his interest in economics, which he began to study on his own. In 1953, he sat for the economics exam at University of London, becoming one of the few external candidates to receive a First. Though essentially self-taught in the discipline, he was appointed an assistant lecturer at the London School of Economics. He received his Ph.D. in economics from the University of London in 1958. Lancaster moved to the U.S. in 1961 to take a position at Johns Hopkins, and joined the Columbia faculty in 1966.

Even before completing his doctorate, Lancaster emerged as a leading economic theorist. In 1956, he authored, with R. G. Lipsey, a groundbreaking article, "The General Theory of Second Best," for The Review of Economics Studies. The "second best" of the title referred to the reality of economic conditions in most cases. While classical economists pushed for free trade and perfect competition, Lancaster insisted that optimal conditions for economic development have to hold in their entirety for them to be valid. If market flaws (such as artificially constrained wages or prices) made the best option, perfect competition, impossible, then a "second best" solution (such as tariffs), although contrary to classical economic theory, would be the best policy. This basic insight continues to influence economic theory and government policy.

His second major contribution was to revise economists' perceptions of consumer behavior. Lancaster's pivotal insight was to view consumers as not choosing between different goods but between different characteristics that the goods provided. Lancaster emphasized basic preferences, such as horsepower or fuel economy for cars, to determine consumer demand. Most fully articulated in his 1979 book, Variety, Equity and Efficiency, this conceptual breakthrough helped explain trade flows between countries, gave economists tools to understand consumer reactions to new goods, and laid the analytical foundations for the "new" trade theory of imperfect competition.

"He 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," said his colleague, Jagdish Bhagwati, Arthur Lehman Professor of Economics.

Lancaster twice served as chairman of the economics department. He was a fellow of the American Academy of Arts and Sciences and the Econometric Society, and a distinguished fellow of the American Economic Association. He also was listed among 100 entries in a 1985 volume, Great Economists since Keynes. He is survived by his wife Debra Grunfeld Lancaster, two sons, and five grandchildren.

| 1 | 2 | 3 | 4 | 5 | 6 |