Tuesday, October 12, 2010

Nobel Prize in Economics

This year's Nobel Prize in Economics has been awarded to Peter A. Diamond, Dale T. Mortensen, and Christopher A. Pissarides for their work extending the concept of search costs to labor markets.

The press release includes the following explanation of the award winning contribututions:
This year's three Laureates have formulated a theoretical framework for search markets. Peter Diamond has analyzed the foundations of search markets. Dale Mortensen and Christopher Pissarides have expanded the theory and have applied it to the labor market. The Laureates' models help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy. This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.
Incidentally, that last observation is similar to something I've said on this blog before about unemployment.

Perhaps the best take I've read so far about this year's prize  is by Peter Klein:
It is said that when the Nobel Prize in economics was first established, prizes were given for using economics to teach people things they didn’t already know, e.g., that economic growth might increase inequality, that depressions are caused by central banks, that macroeconomic stabilization policy doesn’t work, etc. Now, prizes are given to economists who teach other economists things that regular people already know — politicians are self-interested, you shouldn’t put all your eggs in one basket, institutions matter, different people know different things, etc.

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