The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018 has been awarded to economists William Nordhaus and Paul Romer for their work respectively on integrating climate change into long term macroeconomic analysis and integrating technological innovations into long term macroeconomic analysis.
Outlining the reasons for the awards, the Royal Swedish Academy of Sciences said that the two US based economists had “designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth.”
In a statement on the awards, the organisation said:
Climate change: “Nordhaus’ fndings deal with interactions between society and nature. Nordhaus decided to work on this topic in the 1970s, as scientists had become increasingly worried about the combustion of fossil fuel resulting in a warmer climate. In the mid-1990s, he became the frst person to create an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. His model integrates theories and empirical results from physics, chemistry and economics. Nordhaus’ model is now widely spread and is used to simulate how the economy and the climate co-evolve. It is used to examine the consequences of climate policy interventions, for example carbon taxes.”
Technological change: “Romer demonstrates how knowledge can function as a driver of long-term economic growth. When annual economic growth of a few per cent accumulates over decades, it transforms people’s lives. Previous macroeconomic research had emphasised technological innovation as the primary driver of economic growth, but had not modelled how economic decisions and market conditions determine the creation of new technologies. Paul Romer solved this problem by demonstrating how economic forces govern the willingness of frms to produce new ideas and innovations. Romer’s solution, which was published in 1990, laid the foundation of what is now called endogenous growth theory. The theory is both conceptual and practical, as it explains how ideas are different to other goods and require specifc conditions to thrive in a market. Romer’s theory has generated vast amounts of new research into the regulations and policies that encourage new ideas and long-term prosperity”
The SEK9m (€0.86m) prize will be shared equally between the two. The prize will be awarded on 10 December.