The Nobel prize for economics will be awarded tomorrow and there are plenty of candidates in the running for the 8m Swedish krona (£775,000) award. Last year the Royal Swedish Academy of Sciences shared the Sveriges Riksbank prize – the official name of the economics Nobel – between three men whose research into economic behaviour showed that markets can be distorted. Eugene Fama of the University of Chicago was rewarded for work showing that the market for financial advice is flawed and that stock picking is a mug’s game, undermining the claims of investment managers that their services deserve extraordinary rewards. Robert Shiller of Yale University wrote Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism. He tracked property prices, showing that bubbles are not self-correcting, but continue to grow until they crash. The third economist to share the prize was the University of Chicago’s Lars Peter Hansen, for his work on economic risk. This year’s potential winners include:
Marty Weitzman, Bill Nordhaus, William Baumol, Sir Partha Dasgupta
Could environmental science be the flavour for 2014? It would give some momentum to next year’s global climate change talks in Paris and emphasise the recent warnings by US secretary of state John Kerry that global warming is a huge threat.
Harvard University’s Weitzman has examined the effects of carbon pricing. Nordhaus is an economics professor at Yale’s school of forestry and environmental studies while Baumol, who is 92, works at New York State University, where he has lobbied for the inclusion of environmental improvements in the national accounts. Dasgupta, an economics professor at Cambridge university, has examined the link between environmental improvements and wellbeing.
Baumol again, but this time for work on health costs, which are escalating as western populations age and are kept alive for long periods in poor health. Baumol’s hypothesis in 1966 suggested that the costs of education and health care would continue to rise in relative terms, thereby creating significant economic problems. He could be considered visionary.
Sir Anthony Atkinson and Angus Deaton
Inequality, consumption and wellbeing
A British duo. They are mentioned as possible winners because inequality is the subject du jour following publication of Thomas Piketty’s hit book Capital earlier this year. Atkinson, A senior research rellow of Nuffield College, Oxford since 2005, Atkinson has an inequality index named after him. His book Public Economics in an Age of Austerity, was published this year. Deaton is known for his work on “health, wellbeing, and economic development”. He is the Dwight D Eisenhower professor of economics and international affairs at the Woodrow Wilson School of Public and International Affairs at Princeton. Deaton’s best known paper of recent times is “Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll” in the Journal of Economic Perspectives, 2008. His most recent book, The Great Escape: health, wealth and the origins of inequality, was well-received when it was published last year.
This is a more technical area and the kind of ivory-tower, mathematical topic that many believe blinded economists to the oncoming financial crash. Nevertheless, MIT professor Ross is well-regarded and was awarded the $200,000 Onassis prize for finance in 2012. The citation said professor Ross is best known for having invented “arbitrage pricing theory” commonly used by traders. He is also celebrated as the co-discoverer of a method that reduces risk-taking when investing in derivatives.
Jean Tirole and Ariel Pakes
Tirole is scientific director of industrial economics at Toulouse University, from where he has developed ideas about the impact of regulation on industrial organisations using game theory. A former MIT student, his book The Theory of Corporate Finance attempts to develop a unified theory governing how corporations operate in the modern era. Pakes, Thomas professor of economics at Harvard, has focused his research on the way technological change affects markets and the break-up of oligopolies affects regulation
Ken Rogoff and Carmen Reinhart
Rogoff and Reinhart are Harvard economics professors, much admired by George Osborne. Their major contribution since the financial crisis has been to trace the history of financial collapses over the last 800 years. Rogoff has made many public appearances to denounce the early withdrawal of fiscal and monetary stimulus, especially by the EU. But a book by both that purported to show that large public sector debt was a hindrance to growth was later found to be seriously flawed. They refined their research and came to the same conclusions, but the controversy tarnished their reputations.
Impact of technological change in healthcare markets
A professor at MIT, Williams studied at Oxford as a Rhodes scholar and is one of the few women mentioned as a potential winner. Still in her thirties, she is likely to be too young for consideration. But she has spend much of the last decade looking at health economics, which is a big subject in the US following implementation of the president’s Obama care reforms.