Structural
Change
and
Economic
Dynamics
47
(2018)
73–81
Contents
lists
available
at
ScienceDirect
Structural
Change
and
Economic
Dynamics
j
ourna
l
h
o
mepage:
www.elsevier.com/locate/sced
An
entropy
theory
of
value
School
of
Business,
University
of
Northern
British
Columbia,
Prince
George,
BC,
V2N
4Z9,
Canada
1
a
r
t
i
c
l
e
i
n
f
o
Article
history:
Received
9
June
2018
Accepted
30
July
2018
Available
online
7
August
2018
Keywords:
Value
Entropy
Information
Scarcity
Utility
Labor
a
b
s
t
r
a
c
t
From
the
properties
that
the
value
of
commodities
should
satisfy,
it
can
be
derived
that
the
only
mathe-
matical
formula
to
represent
value,
as
a
function
of
scarcity,
is
the
entropy
function.
From
this
function,
the
main
factors
that
influence
the
value
of
a
commodity
are
scarcity
of
the
commodity,
the
number
of
producers,
and
the
market
size.
In
particular,
monopolies
and
near
monopolies,
which
have
small
number
of
producers
or
service
providers,
have
high
valuations.
Many
of
the
important
institutional
structures,
such
as
religions,
governments,
unions,
patents
and
regulations,
obtain
high
valuation
through
monopoly.
I
thank
Kent
Klitgaard,
Dingkang
Wang
and
many
others
for
helpful
comments.
Extensive
editing
and
revision
from
Jamie
Galbraith
greatly
improves
the
quality
of
this
paper.
©
2018
Published
by
Elsevier
B.V.
1.
Introduction
Value
is
the
most
fundamental
concept
in
economics.
It
also
has
great
influence
in
broader
areas
of
social
theory
and
social
science.
A
good
understanding
of
value
should
shed
light
on
social
structures,
economic
policies
and
business
strategies.
There
are
three
main
theories
of
value:
utility
theory,
scarcity
theory
and
labor
theory.
,
the
chief
architect
of
the
neoclassical
economic
theory,
argued
that
value
is
a
function
of
scarcity.
He
said
that
it
is
too
broad
to
define
utility
as
value
since
many
things
with
high
utility,
such
as
oxygen,
are
of
no
economic
value.
Likewise
it
is
too
narrow
to
define
labor
as
value,
for
many
things
that
take
little
labor
have
high
value.
For
example,
although
oil
produced
in
Alberta
takes
much
more
labor
than
oil
produced
in
Saudi
Arabia,
Alberta
oil
is
not
more
expensive
than
Saudi
oil.
In
conventional
economic
theories,
additional
terminologies
are
created,
such
as
rent,
to
explain
this
phenomenon.
However,
this
makes
the
labor
theory
of
value
less
general.
In
this
paper,
we
present
an
entropy
theory
of
value.
Entropy
is
a
measure
of
scarcity
in
physics.
An
entropy
theory
of
value
is
a
scarcity
theory
of
value.
From
the
second
law
of
thermodynam-
ics,
or
the
entropy
law,
the
entropy
of
a
system
tends
to
increase.
A
display
of
low
entropy
state
is
the
universal
sign
of
attractive-
ness
for
animals,
which
include
human
beings.
This
explains
how
E-mail
address:
chenj@unbc.ca
1
http://web.unbc.ca/
∼
chenj/.
subjective
utilities
are
generally
entropy
related.
Since
all
human
activities
need
to
consume
low
entropy
sources
–
for
instance,
fresh
food
is
preferred
to
stale,
new
clothing
is
preferred
to
old,
an
entropy
theory
of
value
includes
the
labor
theory
of
value.
But
it
is
broader
than
the
labor
theory
of
value.
From
the
entropy
theory
of
value,
other
low
entropy
resources,
such
as
oil,
will
have
value
as
well.
Because
of
the
universality
of
the
entropy
law,
an
entropy
theory
of
value
has
been
suggested
before.
The
success
of
entropy
theory
of
information
stimulated
many
research
efforts
in
economics.
Since
information
is
the
reduction
of
entropy,
an
entropy
theory
of
value
is
inevitably
an
information
theory
of
value.
However,
the
information
theory
of
value,
or
the
entropy
theory
of
value,
was
not
developed
in
economics.
Very
often,
the
direction
of
scientific
research
is
shaped
by
the
thinking
of
an
authority.
In
an
often-cited
passage,
Arrow
wrote,
“the
well-known
Shannon
mea-
sure
which
has
been
so
useful
in
communications
engineering
is
not
in
general
appropriate
for
economic
analysis
because
it
gives
no
weight
to
the
value
of
the
information.
If
beforehand
a
large
manufacturer
regards
it
as
equally
likely
whether
the
price
of
his
product
will
go
up
or
down,
then
learning
which
is
true
conveys
no
more
information,
in
the
Shannon
sense,
than
observing
the
toss
of
a
fair
coin”
(Arrow,
1983
(
),
p.
138).
The
Shannon
measure
actually
measures
the
weight
of
infor-
mation.
For
example,
N
symbols
with
identical
Shannon
measure
carry
N
times
more
information
than
a
single
symbol
(
).
Similarly,
the
value
of
the
information
about
the
future
price
is
higher
to
a
large
manufacturer
than
to
a
small
manufacturer,
https://doi.org/10.1016/j.strueco.2018.07.008
0954-349X/©
2018
Published
by
Elsevier
B.V.