Arrow’s Impossibility Theorem applies to collective decision-making where individual preferences must be aggregated into a single social choice under strict fairness conditions. In higher-level or “mission-driven” markets like the sustainability or green market, these assumptions rarely hold because buyers, regulators, and funders are not only consumers but also co-producers of shared social goals. In Uganda, for example, the National Renewable Energy Policy and the Green Growth Development Strategy use subsidies, public–private partnerships, and donor frameworks that pre-set priorities (such as off-grid solar or clean cooking) rather than aggregating all individual preferences neutrally; the result is a negotiated rather than purely voted outcome. Conversely, Arrow’s logic works better in settings like local procurement auctions for non-strategic goods or participatory budgeting at district level—contexts where preferences can be treated as independent, comparable, and welfare-oriented without overriding collective missions.

Wasika, you are touching there 3 different markets, sustainability markets, green markets and dwarf green markets, soon after you are referring to the dwarf geen markets in Africa as geen market.

It happens that the arrow impossibility theorem does not work in those 3 different markets for different reasons, that is why the question is framed to cover sustainability markets, green markets and red markets, where the theorem breaks for slightly different reasons, for ease focus on why the arrow impossibility theorem does not work in those markets. But the question here is specific, Why the arrow impossibility theorem does not work in higher level markets such as the sustainability market or the green market?. You focus on green markets or sustainability markets and their preference nature and model strucuture and then may be able to see why the conditions of the arrow impossibility theorem do not hold.

Arrow’s impossibility theorem does not strictly apply in higher-level markets like sustainability or green markets because these systems often operate with constrained or weighted preference structures (e.g., ecological thresholds, intergenerational equity rules) rather than unrestricted individual preferences, which bypass Arrow’s conditions and allow consistent collective decisions to emerge under normative or scientific constraints.

Similarly, sustainability and green markets embed external standards (climate targets, biodiversity thresholds, social safeguards) that restrict the domain of choices and weight outcomes differently, so the theorem’s paradoxes—based on unrestricted preference aggregation—lose force, enabling coherent collective decisions without full exposure to Arrow’s impossibility.

Chuck you are talking about dwarf sustainability markets and dwarf green markets, in sustainability markets and in green markets the choice structure is codependent as the old independent choice paradigm is left behind so now you have a codependent welfare function as the arrow impossibility theorem works on independent choice

Food for thoughts in case you have not seen this 2016 article

The Unintended Consequences of Paradigm Death and Shift: Was the Arrow Impossibility Theorem Left Behind?

Article The Unintended Consequences of Paradigm Death and Shift: Was...

Arrow’s theorem (1951) is about aggregating individual preferences into a collective decision. It shows that no social choice rule can satisfy all of these "fairness conditions" at once:

• Unrestricted domain (works for any preference set),
• Pareto efficiency,
• Non-dictatorship,
• Independence of irrelevant alternatives,
• Transitivity (consistency).

So, in simple terms: when preferences are diverse, no voting system can fairly and consistently produce a collective choice.

Markets like the sustainability market or the green market operate in a different paradigm than ordinary consumer markets. A few reasons:

(a) Preference structures are not “individualistic”

• Arrow’s framework assumes agents have private, self-regarding preferences (e.g., I prefer apples to bananas).
• In green markets, preferences are often other-regarding, intergenerational, or ethical (e.g., I prefer renewable energy not only for me, but for society and future generations).
• These kinds of values collapse the rigid separations that Arrow assumes, because people may coordinate around shared ethical norms, reducing preference conflict.

b) Collective goals override strict aggregation

• Sustainability markets are often goal-driven (carbon neutrality, biodiversity preservation, SDGs).
• Instead of just aggregating individual preferences, outcomes are filtered through constraints or normative commitments (e.g., policies banning coal even if some individuals prefer it).
• This shifts the mechanism from "preference aggregation" to "constraint satisfaction," where Arrow’s paradox doesn’t directly apply.

b) Collective goals override strict aggregation

• Sustainability markets are often goal-driven (carbon neutrality, biodiversity preservation, SDGs).
• Instead of just aggregating individual preferences, outcomes are filtered through constraints or normative commitments (e.g., policies banning coal even if some individuals prefer it).
• This shifts the mechanism from "preference aggregation" to "constraint satisfaction," where Arrow’s paradox doesn’t directly apply.

Arrow’s impossibility theorem does hold within its assumptions — but higher-level markets don’t fit those assumptions:

• Preferences are not purely individualistic, private, or fixed.
• Outcomes are not just the result of aggregating preferences; they are constrained by ethical, ecological, and intergenerational imperatives.
• Decision-making often uses consensus, deliberation, or strong institutional frameworks that explicitly break Arrow’s axioms.

Thus, in green or sustainability markets, the system shifts from “aggregating what people want” to “coordinating around what society needs to survive and flourish.” Arrow’s theorem simply doesn’t bite in that paradigm.

Bhishem, ghaood day. It happens that the arrow impossibility theorem does not hold in both SUSTAINABILITY MARKETS AND DWARF SUSTAINABILITY MARKETS for different reasons, but only when thinking outside the box you are familiar with these different concepts.

In your comment you are mixing up both concepts but refer all your comments base on "Sustainability markets", which tells me that you are not familiar with what is a sustainability market and what is not. For example, there are green markets and there are dwarf green markets such a la pollution management markets, the arrow impossibility theorem does work in both case but for different reasons and you have all different reasons mixed up in your comment as you can not see the distintion so you can not separate them. Look at the requirements of the arrow impossiibility theorem and at the structure of each of these two different types of markets and then you may be able to see why it does not work in green market and why it does not work on dwarf green markets.

However, the question here is specifically separted to exchange ideas on why the theorem doe not work on SUSTAINABILITY MARKETS OR GREEN MARKETS OR RED MARKETS for simplicity as I made a separate question for DWARF SUSTAINABILITY MARKETS.

Respectfully yours;

Lucio

Respectfully yours

While Arrow’s theorem assumes fixed individual preferences; in sustainability or green markets, preferences evolve through awareness, ethics, along with collective responsibility, making cooperation possible where the theorem predicts deadlock.

Tunupriya, keep in mind, there are sustainability markets and dwarf sustainability markets and there are green markets and dwarf.green markets, in all of them the arrow impossibility theremin IS LEFT BEHIND.

The question here is about sustainability markets, green markets and red markets, in all.of them the arrow impossibility theorem DOES NOT WORK as when you shift from the

Additional market thinking to sustainability markets, green markets.ornred.makets the freference-chioce set shifts from independent to fully to partial codependence, what you do affects all or me dependent of the type of codependency as theis goes.one.to one with the shift in.model structure, cost, choice...and so on.