Harold Hotelling

Harold Hotelling (/hotl/; September 29, 1895 December 26, 1973) was a
Harold Hotelling
mathematical statistician and an influential economic theorist, known for Hotelling's
law, Hotelling's lemma, and Hotelling's rule in economics, as well as Hotelling's T-
squared distribution in statistics.[1] He also developed and named the principal
component analysis method widely used in statistics and computer science.

He was Associate Professor of Mathematics at Stanford University from 1927 until

1931, a member of the faculty of Columbia University from 1931 until 1946, and a
Professor of Mathematical Statistics at the University of North Carolina at Chapel
Hill from 1946 until his death. A street in Chapel Hill bears his name. In 1972 he
received the North Carolina Award for contributions to science.

Contents
1 Statistics
Born September 29, 1895
Fulda, Minnesota,
2 Economics
2.1 Spatial economics U.S.
2.2 Market socialism (Georgism) Died December 26, 1973
2.3 Non-convexities (aged 78)
2.3.1
Producers with increasing returns to scale: Marginal cost
Chapel Hill, North
pricing Carolina, U.S.
2.3.2 Consumers with non-convex preferences Nationality United States
3 Works Alma mater Princeton University
4 Papers PhD 1924
5 References University of
6 External links Washington BA 1919,
MA 1921
Known for Hotelling's T-square
Statistics distribution
Canonical correlation
Hotelling is known to statisticians because of Hotelling's T-squared distribution
analysis
which is a generalization of theStudent's t-distributionin multivariate setting, and its
Hotelling's law
use in statistical hypothesis testing and confidence regions. He also introduced
Hotelling's lemma
canonical correlation analysis.
Hotelling's rule
At the beginning of his statistical career Hotelling came under the influence of R.A. Awards North Carolina Award
Fisher, whose Statistical Methods for Research Workers had "revolutionary 1972
importance", according to Hotelling's review. Hotelling was able to maintain
Scientific career
professional relations with Fisher, despite the latter's temper tantrums and polemics.
Fields Statistics
Hotelling suggested that Fisher use the English word "cumulants" for Thiele's
Economics
Danish "semi-invariants". Fisher's emphasis on the sampling distribution of a
statistic was extended by Jerzy Neyman and Egon Pearson with greater precision Institutions Univ. of North Carolina
and wider applications, which Hotelling recognized. Hotelling sponsored refugees 194673
from European anti-semitism and Nazism, welcoming Henry Mann and Abraham Columbia University
Wald to his research group at Columbia. While at Hotelling's group, Wald developed 193146
sequential analysis and statistical decision theory, which Hotelling described as Stanford University
"pragmatism in action". 192731
Doctoral Oswald Veblen
In the United States, Harold Hotelling is known for his leadership of the statistics
advisor
profession, in particular for his vision of a statistics department at a university
, which
convinced many universities to start statistics departments. Hotelling was known for Doctoral Kenneth Arrow
his leadership of departments at Columbia University and the University of North students Seymour Geisser
Carolina. Influenced Kenneth Arrow,
Seymour Geisser,
Economics Milton Friedman

Hotelling has a crucial place in the growth of mathematical economics; several areas of active research were influenced by his
economics papers. While at the University of Washington, he was encouraged to switch from pure mathematics toward mathematical
economics by the famous mathematician Eric Temple Bell. Later, at Columbia University (where during 1933-34 he taught Milton
Friedman statistics) in the '40s, Hotelling in turn encouraged young Kenneth Arrow to switch from mathematics and statistics applied
to actuarial studies towards more general applications of mathematics in general economic theory. Hotelling is the eponym of
Hotelling's law, Hotelling's lemma, and Hotelling's rule in economics.

Hotelling was influenced by the writing of Henry George and was an editorial adviser for the Georgist journal AJES[2] Mason
[3]
Gaffney claims that Hotelling kept his lifelong beliefs about land and tax reform secret because he feared ridicule.

Spatial economics
One of Hotellings most important contributions to economics was his conception of spatial economics in his 1929 article.[4] Space
[5]
was not just a barrier to moving goods around, but rather a field upon which competitors jostled to be nearest to their customers.

Hotelling considers a situation in which there are two sellers at point A and B in a line segment of size l. The buyers are distributed
uniformly in this line segment and carry the merchandise to their home at cost c. Let p1 and p2 be the prices charged by A and B, and
let the line segment be divided in 3 parts of size a, x+y and b, where x+y is the size of the segment between A and B, a the portion of
segment to the left of A and b the portion of segment to the right of B. Therefore, a+x+y+b=l. Since the product being sold is a
commodity, the point of indifference to buying is given by p1+cx=p2+cy. Solving for x and y yields:

Let q1 and q2 indicate the quantities sold by A and B. The sellers profit are:

By imposing profit maximization:

Hotelling obtains the economic equilibrium. Hotelling argues this equilibrium is stable even though the sellers may try to establish a
price cartel.

Market socialism (Georgism)

As an extension of his research in spacial economics, Hotelling realized that it would be possible and socially optimal to finance
investment in public goods through a Georgist land value tax and then provide such goods and services to the public at marginal cost
(in many cases for free). This is an early expression of the Henry George theorem that Joseph Stiglitz and others expanded upon.
Hotelling pointed out that when local public goods like roads and trains become congested, users create an additional mar
ginal cost of
excluding others. Hotelling became an early advocate of Geor
gist congestion pricing and stated that the purpose of this unique type of
toll fee was in no way to recoup investment costs but was instead a way of changing behavior and compensating those who are
excluded. Hotelling describes how human attention is also in limited supply at any given time and place, which produces a rental
value; he concludes that billboards could be regulated or taxed on similar grounds as other scarcity rents. Hotelling reasoned that rent
and taxation were analogous, the public and private versions of a similar thing. Therefore, the social optimum would be to put taxes
directly on rent.[6] Kenneth Arrow described this as 'market socialism', but Mason Gaffney points out that it is actually 'Georgism'.[7]
Hotelling added the following comment about the ethics of Georgist value capture: "The proposition that there is no ethical objection
to the confiscation of the site value of land by taxation, if and when the nonlandowning classes can get the power to do so, has been
ably defended by [the Georgist] H. G. Brown."[6]

Non-convexities
Hotelling made pioneering studies of non-convexity in economics. In economics, non-convexity refers to violations of the convexity
assumptions of elementary economics. Basic economics textbooks concentrate on consumers with convex preferences and convex
budget sets and on producers with convex production sets; for convex models, the predicted economic behavior is well
understood.[8][9] When convexity assumptions are violated, then many of the good properties of competitive markets need not hold:
Thus, non-convexity is associated with market failures,[10][11] where supply and demand differ or where market equilibria can be
inefficient.[8][11][12][13][14][15]

Producers with increasing returns to scale: Marginal cost pricing

In "oligopolies" (markets dominated by a few producers), especially in "monopolies" (markets dominated by one producer), non-
convexities remain important.[15] Concerns with large producers exploiting market power initiated the literature on non-convex sets,
when Piero Sraffa wrote about firms with increasing returns to scale in 1926,[16] after which Hotelling wrote about marginal cost
pricing in 1938.[17] Both Sraffa and Hotelling illuminated the market power of producers without competitors, clearly stimulating a
.[18]
literature on the supply-side of the economy

Consumers with non-convex preferences

When the consumer's preference set is non-convex, then (for some prices) the consumer's demand is not connected; A disconnected
demand implies some discontinuous behavior by the consumer
, as discussed by Hotelling:

If indifference curves for purchases be thought of as possessing a wavy character, convex to the origin in some
regions and concave in others, we are forced to the conclusion that it is only the portions convex to the origin that can
be regarded as possessing any importance, since the others are essentially unobservable. They can be detected only by
the discontinuities that may occur in demand with variation in price-ratios, leading to an abrupt jumping of a point of
tangency across a chasm when the straight line is rotated. But, while such discontinuities may reveal the existence of
chasms, they can never measure their depth. The concave portions of the indifference curves and their many-
.[19]
dimensional generalizations, if they exist, must forever remain in unmeasurable obscurity

according to Diewert.[20]
Following Hotelling's pioneering research on non-convexities in economics, research in economics has recognized non-convexity in
new areas of economics. In these areas, non-convexity is associated with market failures, where any equilibrium need not be efficient
or where no equilibrium exists because supply and demand differ.[8][11][11][12][13][14][15] Non-convex sets arise also with
environmental goods (and other externalities),[13][14] and with market failures,[10] and public economics.[12][21] Non-convexities
occur also with information economics,[22] and with stock markets[15] (and other incomplete markets).[23][24] Such applications
[8]
continued to motivate economists to study non-convex sets.

Works
Hotelling, Harold (September 1925)."A general mathematical theory of depreciation" . Journal of the American
Statistical Association. Taylor and Francis. 20 (151): 340353. doi:10.1080/01621459.1925.10503499.
Hotelling, Harold (September 1927)."Differential equations subject to error, and population estimates". Journal of the
American Statistical Association. Taylor and Francis. 22 (159): 283314. doi:10.1080/01621459.1927.10502963.
Hotelling, Harold (September 1927). S " tatistical methods for research workersby R. A. Fisher". Journal of the
American Statistical Association. Taylor and Francis via JSTOR. 22 (159): 411412. doi:10.2307/2276824.
JSTOR 2276824. Harold Hotellings review of Fishers Statistical methods for research workers.
Hotelling, Harold; Working, Holbrook (March 1929). "Applications of the theory of error to the interpretation of
trends". Journal of the American Statistical Association , special issue: Proceedings of the American Statistical
Association. Taylor and Francis. 24 (165A): 7385. doi:10.1080/01621459.1929.10506274.
Hotelling, Harold (March 1929)."Stability in competition". The Economic Journal. Taylor and Francis. 39 (153): 41
57. doi:10.2307/2224214. JSTOR 2224214.
Hotelling, Harold (April 1931). "The economics of exhaustible resources". Journal of Political Economy. The
University of Chicago Pressvia JSTOR. 39 (2): 137175. doi:10.1086/254195. JSTOR 1822328.
Hotelling, Harold (1931)."The generalization of student's ratio". Annals of Mathematical Statistics. Institute of
Mathematical Statistics. 2 (3): 360378. doi:10.1214/aoms/1177732979.
Hotelling, Harold (October 1932). "Edgeworth's taxation paradox and the nature of demand and supply functions".
Journal of Political Economy. The University of Chicago Pressvia JSTOR. 40 (5): 577616. doi:10.1086/254387.
JSTOR 1822600.
Hotelling, Harold (September 1933)."Analysis of a complex of statistical variables into principal components" .
Journal of Educational Psychology. American Psychological Association. 24 (6): 417441. doi:10.1037/h0071325.
Hotelling, Harold (October 1933)."Note on Edgeworth's taxation phenomenon and Professor Garver's additional
condition on demand functions". Econometrica. The Econometric Societyvia JSTOR. 1 (4): 408409.
doi:10.2307/1907332. JSTOR 1907332.
Hotelling, Harold (January 1935)."Demand functions with limited budgets". Econometrica. The Econometric Society
via JSTOR. 3 (1): 6678. doi:10.2307/1907346. JSTOR 1907346.
Hotelling, Harold (February 1935)."The most predictable criterion". Journal of Educational Psychology. American
Psychological Association. 26 (2): 139142. doi:10.1037/h0058165.
Hotelling, Harold (December 1936)."Relation between two sets of variates". Biometrika. Oxford Journals. 28 (34):
321377. doi:10.1093/biomet/28.3-4.321.
Hotelling, Harold; Pabst, Margaret R. (March 1936). "Rank correlation and tests of significance involving no
assumption of normality".Annals of Mathematical Statistics. Institute of Mathematical Statistics. 7 (1): 2943.
doi:10.1214/aoms/1177732543. JSTOR 2957508.
Hotelling, Harold (July 1938)."The general welfare in relation to problems of taxation and of railway and utility rates".
Econometrica. The Econometric Society. 6 (3): 242269. doi:10.2307/1907054. JSTOR 1907054 via JSTOR.
Hotelling, Harold (December 1940)."The teaching of statistics". Annals of Mathematical Statistics. Institute of
Mathematical Statistics. 11 (4): 457470. doi:10.1214/aoms/1177731833.
Hotelling, Harold (1951)."A generalized T-Test and measure of multivariate dispersion". Proceedings of the Second
Berkeley Symposium on Mathematical Statistics and Probability . University of California Press: 2341.
Hotelling, Harold (March 1951)."The impact of R. A. Fisher on statistics". Journal of the American Statistical
Association. Taylor and Francis. 46 (253): 3546. doi:10.1080/01621459.1951.10500765.
Hotelling, Harold (1988)."Golden oldies: classic articles from the world of statistics and probability: 'the teaching of
statistics' ". Annals of Mathematical Statistics. Institute of Mathematical Statistics. 3 (1): 6371.
doi:10.1214/ss/1177013001.
Hotelling, Harold (1988)."Golden oldies: classic articles from the world of statistics and probability: 'the place of
statistics in the university' ". Annals of Mathematical Statistics. Institute of Mathematical Statistics. 3 (1): 7283.
doi:10.1214/ss/1177013002.

Papers
 "Harold Hotelling papers, 1910-1975". Columbia University Libraries Archival Collections
. Retrieved 2013-12-05.

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(https://www.jstor.org/stable/1907054).
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Kenneth J. Arrow, 1987, Hotelling ,Harold"The New Palgrave: A Dictionary of Economics, v. 2, pp. 67071.
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External links
Harold Hotelling at the Mathematics Genealogy Project
New School: Harold Hotelling
American Statistical Association: Harold Hotelling
Harold Hotelling
The following have photographs:

Harold Hotelling on the Portraits of Statisticianspage.

National Academy of Sciences Biographical Memoir

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