The 2018 Nobel Prize in Economics, more specifically « the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, » was awarded today to two American economists: Paul Romer and William Nordhaus.
Paul Romer currently teaches at the Stern School of Business in New York. He has demonstrated the importance of knowledge and the circulation of ideas for long-term growth. While his contemporaries focused solely on the direct importance of technological innovations, he showed the need to also take into account the market environment and the decisions of economic agents in this process. He thus contributed to introducing the fundamental concept of « endogenous growth. »
Paul Romer wanted to put his models into practice by creating « charter cities » in developing countries, but his project was contested and he encountered political and institutional difficulties. He also criticized the unrealistic nature of mathematical models in the field of macroeconomics in an article published in 2016: The trouble with macroeconomics. Appointed Chief Economist of the World Bank in 2016, he had to resign in 2018 due to disagreements with the institution.
William Nordhaus was the first economist to analyze the link between climate and the economy in the 1970s. Through his DICE model (Dynamics Integrated Climate Economy Model, 1992), he sought to calculate an « actualization » of the projected costs of greenhouse gas emissions. This measurement made it possible to arrive at a « carbon price, » which serves as the basis for the implementation of market incentive mechanisms aimed at reducing emissions.
Although he was not initially in favor of strong political measures and was critical of the Stern report’s discounting calculation, he subsequently became an advocate for the introduction of a global carbon tax after the publication of numerous studies on climate change.
The Royal Academy of Sciences wished to reward these two economists who » have developed methods that address some of the most fundamental and pressing challenges of our time: combining long-term sustainable growth of the global economy with the well-being of the planet. » The Academy adds that « This year’s laureates do not provide definitive answers, but thanks to their discoveries, we are close to knowing how we can achieve prolonged and sustainable global economic growth. »
The prize was announced on the same day that the IPCC published a report calling for « unprecedented » changes to limit global warming.
Sources: Le Monde, Challenge, Press Release of the Nobel Prize
