Royal Swedish Academy of Sciences has decided to award 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel commonly referred as the Nobel Prize in Economics to:
William D. Nordhaus (one half of the prize) "for integrating climate change into long-run macroeconomic analysis" (on left of picture below)
Paul M. Romer (one half of the prize) 'for integrating technological innovations into long-run macroeconomic analysis" (on right of picture below)
The works of both Nordhaus and Romer are an extension of the Solow-Swan model of economic growth for which Robert Solow received the Economics Nobel in 1987. The Solow-Swan model is based upon concept of Supply-Demand and strives to explain economic growth as a factor of capital accumulation, population growth and technological progress. Nordhaus and Romer extends the model further to introduce two important factors 'Nature' and 'Knowledge'
Paul Romer is the son of a former Colorado governor and had done his M.A. and Ph.D. in Economics from the University of Chicago. Solow-Swan model accepted technological advances as an intrinsic ingredient for economic growth and prosperity but didn't answer the question as to what caused those technological advances to take place in a certain place at a certain time. A post on Twitter by the founder of ourworldindata.org Max Roser indicates that Romer had been intrigued by the rapid economic growth seen in UK since the industrial revolution and wanted to study it further. (see the graph below depicting the trend) Or alternately you may ask why Silicon Valley became the technology capital of the world and not any other place.
The Solow-Swan model assumed technological advances to be an exogenous or external factor which helped in economic development. The new model however proposed technological leaps are produced through ideas in a market economy which in turn are a factor of the number people working in the knowledge sector. The ideas and innovations are crucial for economic growth.
Ideas are different from other economic goods in being 'non-rival' i.e. one person's idea can be used by another. But at the same time there has to be limits till which a particular idea could be 'excludable' so that there is suitable incentive in the generation of new ideas through private investment. Safeguards like patents and regulations can help to prevent theft of ideas. Thus public policy making plays an important role in the generation of new ideas and innovations. The new theory also suggests that while generation of new ideas could mean large initial costs but as the subsequent replication of the ideas achieves scale, the costs become marginal and returns increase.
The 'Endogenous Growth Theory' drives home how factors within a market economy drives the generation of a ideas and innovations which further drives growth. Countries like China and India should be at a greater advantage from having a large population as large population implies more people working in the knowledge sector generating ideas. However to enable and derive advantage from the large population public policy making has to play an important role through investments in healthcare and affordable education.
It is said that Romer was expected to get the award in previous years as well. And last year it so happened his employer NYU published a note honoring him for the award last year; which turned out to be incorrect. He has served for some time as the Chief Economist at the World Bank and is currently a professor at the New York University Stern School of Business.
The below audio excerpt is the communication between and Romer and representative of Nobel Prize committee conveying him the good news:
While Romer added the perspective of ideas and innovations to the Solow-Swan model, William Nordhaus added the dimension of 'nature'. Nordhaus did his B.A. and M.A. from Yale University and his Ph.D. under Robert Solow himself at the Massachusetts Institute of Technology.
In the 1970s when global warming was making it's initial effects Nordhaus was a young faculty at Yale. He devoted his attention to this field and extended Solow-Swan model by including effects of global warming caused by carbon emissions. He researched around the development of a model which can help to analyze the costs and benefits of climate change.
Nordhaus guided the development of Integrated Assessment Model (IAMs) which had two versions: Regional Integrated Climate-Economy (RICE) and Dynamic Integrated Climate-Economy (DICE). These models help in policy making by helping simulate how policy measures impact environmental impact and economic growth. The models establish the two way relationship between economic growth and climate changes. One of the remedies, against the detrimental changes to the climate caused by economic growth, which is suggested by Nordhaus is the imposition of carbon taxes. Nordhaus models thus helps to measure quantitatively the environmental damages resulting from.economic activities
Nordhaus was born to a prominent German-Jewish family in Albuquerque, New Mexico where he grew up with his brother Bob Nordhaus inside family's large estate. Both brothers would have developed their love for nature from those childhood days. Bob later became an environmental lawyer; he passed away in 2016..
The below audio excerpt is the communication between and Nordhaus and representative of Nobel Prize committee conveying him the good news:
Romer's and Nordhaus's contributions have been significant from the stand point of long-run macroeconomics. The general macro economic analysis done tend to study ups and downs of market economy over a decade along with the factors affecting those. However while concentrating on such studies we tend to ignore factors which undergo small changes year upon year. The cumulative effect of these changes over many decades and centuries become significant.
(P.S.: I am not a trained economist and before today haven't heard of these laureates or their ground breaking achievements. So I decided to do a bit of reading; obviously with Google help. And here I have tried to elucidate their contributions towards Economics in simple terms)
References:
William D. Nordhaus (one half of the prize) "for integrating climate change into long-run macroeconomic analysis" (on left of picture below)
Paul M. Romer (one half of the prize) 'for integrating technological innovations into long-run macroeconomic analysis" (on right of picture below)
The works of both Nordhaus and Romer are an extension of the Solow-Swan model of economic growth for which Robert Solow received the Economics Nobel in 1987. The Solow-Swan model is based upon concept of Supply-Demand and strives to explain economic growth as a factor of capital accumulation, population growth and technological progress. Nordhaus and Romer extends the model further to introduce two important factors 'Nature' and 'Knowledge'
Paul Romer is the son of a former Colorado governor and had done his M.A. and Ph.D. in Economics from the University of Chicago. Solow-Swan model accepted technological advances as an intrinsic ingredient for economic growth and prosperity but didn't answer the question as to what caused those technological advances to take place in a certain place at a certain time. A post on Twitter by the founder of ourworldindata.org Max Roser indicates that Romer had been intrigued by the rapid economic growth seen in UK since the industrial revolution and wanted to study it further. (see the graph below depicting the trend) Or alternately you may ask why Silicon Valley became the technology capital of the world and not any other place.
Paul Romer told me it was a chart that got him into studying economics.— Max Roser (@MaxCRoser) October 8, 2018
He looked at this line and wondered how something like this is possible. Today, decades later, he wins the Nobel Prize for contributing to the answer on how it is possible.
[source https://t.co/RDdsXbMz4j] pic.twitter.com/xmI27hdyZJ
It was while still being a Ph.D. student at the University of Chicago that Romer started to work on his theory which, through the contributions of subsequent other economists, came to be known as the 'Endogenous Growth Theory'
The Solow-Swan model assumed technological advances to be an exogenous or external factor which helped in economic development. The new model however proposed technological leaps are produced through ideas in a market economy which in turn are a factor of the number people working in the knowledge sector. The ideas and innovations are crucial for economic growth.
Ideas are different from other economic goods in being 'non-rival' i.e. one person's idea can be used by another. But at the same time there has to be limits till which a particular idea could be 'excludable' so that there is suitable incentive in the generation of new ideas through private investment. Safeguards like patents and regulations can help to prevent theft of ideas. Thus public policy making plays an important role in the generation of new ideas and innovations. The new theory also suggests that while generation of new ideas could mean large initial costs but as the subsequent replication of the ideas achieves scale, the costs become marginal and returns increase.
The 'Endogenous Growth Theory' drives home how factors within a market economy drives the generation of a ideas and innovations which further drives growth. Countries like China and India should be at a greater advantage from having a large population as large population implies more people working in the knowledge sector generating ideas. However to enable and derive advantage from the large population public policy making has to play an important role through investments in healthcare and affordable education.
It is said that Romer was expected to get the award in previous years as well. And last year it so happened his employer NYU published a note honoring him for the award last year; which turned out to be incorrect. He has served for some time as the Chief Economist at the World Bank and is currently a professor at the New York University Stern School of Business.
The below audio excerpt is the communication between and Romer and representative of Nobel Prize committee conveying him the good news:
While Romer added the perspective of ideas and innovations to the Solow-Swan model, William Nordhaus added the dimension of 'nature'. Nordhaus did his B.A. and M.A. from Yale University and his Ph.D. under Robert Solow himself at the Massachusetts Institute of Technology.
In the 1970s when global warming was making it's initial effects Nordhaus was a young faculty at Yale. He devoted his attention to this field and extended Solow-Swan model by including effects of global warming caused by carbon emissions. He researched around the development of a model which can help to analyze the costs and benefits of climate change.
Nordhaus guided the development of Integrated Assessment Model (IAMs) which had two versions: Regional Integrated Climate-Economy (RICE) and Dynamic Integrated Climate-Economy (DICE). These models help in policy making by helping simulate how policy measures impact environmental impact and economic growth. The models establish the two way relationship between economic growth and climate changes. One of the remedies, against the detrimental changes to the climate caused by economic growth, which is suggested by Nordhaus is the imposition of carbon taxes. Nordhaus models thus helps to measure quantitatively the environmental damages resulting from.economic activities
Nordhaus was born to a prominent German-Jewish family in Albuquerque, New Mexico where he grew up with his brother Bob Nordhaus inside family's large estate. Both brothers would have developed their love for nature from those childhood days. Bob later became an environmental lawyer; he passed away in 2016..
The below audio excerpt is the communication between and Nordhaus and representative of Nobel Prize committee conveying him the good news:
Romer's and Nordhaus's contributions have been significant from the stand point of long-run macroeconomics. The general macro economic analysis done tend to study ups and downs of market economy over a decade along with the factors affecting those. However while concentrating on such studies we tend to ignore factors which undergo small changes year upon year. The cumulative effect of these changes over many decades and centuries become significant.
(P.S.: I am not a trained economist and before today haven't heard of these laureates or their ground breaking achievements. So I decided to do a bit of reading; obviously with Google help. And here I have tried to elucidate their contributions towards Economics in simple terms)
References:
- https://www.nobelprize.org/
- https://www.nobelprize.org/uploads/2018/10/popular-economicsciencesprize2018.pdf
- https://www.nobelprize.org/uploads/2018/10/advanced-economicsciencesprize2018.pdf
- https://www.marketwatch.com/story/why-paul-romer-and-william-nordhaus-won-the-2018-nobel-prize-for-economics-2018-10-08
- https://paulromer.net/
- http://www.people.hbs.edu/dcomin/def.pdf
- https://www.abqjournal.com/921072/environment-energy-shaped-nordhaus-career.html
- https://krugman.blogs.nytimes.com/2013/08/18/the-new-growth-fizzle/?_r=0&mtrref=en.wikipedia.org&assetType=opinion
- https://www.nytimes.com/2014/05/11/us/brothers-work-different-angles-in-taking-on-climate-change.html
- Wikipedia
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