Category Archives: Nobel

Economics Nobel Prizes

Source: SagePub, Jun 2019

In economics, the University of Chicago holds the top spot with 32 laureates, followed by Harvard (30), MIT (28), Stanford (25), Berkeley (23), Yale (21), and Princeton (19). In terms of the graduate department awarding the PhD degree to economics Nobel laureates, about half have come from only five universities: MIT (11), Harvard (10), Chicago (9), Carnegie Mellon (4) and the London School of Economics (4). Six other universities have produced two each.

Robert Solow (Nobel 1987) published (in 1956) a formal model of economic growth in which the output to capital ratio was not fixed, and the growth rate of population (and consequently the labor force) drove economic growth. Technological progress entered the process via a specified steady rate of productivity growth. His first order differential equation explaining the rate of economic growth appealed to the mathematical formalism of economists (and has lasted as a staple for more than 50 years) because it is founded on notions essential to popular classical economic theories.

Paul Romer, recipient of the 2018 Prize, extended the basic growth model by including technological progress as an endogenous factor, wherein economic policies, such as trademark and patent laws, could affect and accelerate the rate of technological progress (Henderson, 2018).

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Won both the Nobel Prize and the Ig Nobel

Source: Wikipedia, date indeterminate

 

Geim was awarded the 2010 Nobel Prize in Physics jointly with Konstantin Novoselov for his work on graphene.[21][22] He is Regius Professor of Physics and Royal Society Research Professor at the Manchester Centre for Mesoscience and Nanotechnology

In addition to the 2010 Nobel Prize, he received an Ig Nobel Prize in 2000 for using the magnetic properties of water scaling to levitate a small frog with magnets. This makes him the first, and thus far only, person to receive both the prestigious science award and its tongue-in-cheek equivalent.

Geim’s research in 1997 into the possible effects of magnetism on water scaling led to the famous discovery of direct diamagnetic levitation of water, and led to a frog being levitated.[51] For this experiment, he and Michael Berry received the 2000 Ig Nobel Prize.[5] “We were asked first whether we dared to accept this prize, and I take pride in our sense of humor and self-deprecation that we did”.[30]

He said of the range of subjects he has studied: “Many people choose a subject for their PhD and then continue the same subject until they retire. I despise this approach. I have changed my subject five times before I got my first tenured position and that helped me to learn different subjects.”[34]

He named his favourite hamster, H.A.M.S. ter Tisha, co-author in a 2001 research paper.

A colleague of Geim said that his award shows that people can still win a Nobel by “mucking about in a lab”.[76]

On winning both a Nobel and Ig Nobel, he has stated that

“Frankly, I value both my Ig Nobel prize and Nobel prize at the same level and for me Ig Nobel prize was the manifestation that I can take jokes, a little bit of self-deprecation always helps.”[11]

Predicting a Nobel Prize for “Mathematics of Ideas”

Source: SlideShare, Oct 2017
https://www.slideshare.net/secret/vcqrQrMaokNa80”

This Oct 2017 Slideshare predicts that Paul Romer’s award of the Nobel Memorial Prize in Economic Sciences can lead to a Nobel Memorial Prize in Economic Sciences for “mathematics of ideas

Slide 27 (D8).

More on Romer’s Endogenous Growth Theory

Conversations with Economists, Summer 1999

the strength of Solow’s model was that he brought technology explicitly into the analysis in both his empirical paper and his theoretical paper. He had an explicit representation for technology, capital and labour. Those are the three elements that you have to think about if you want to think about growth. That was the good part.

The downside was that because of the constraints imposed on him by the existing toolkit, the only way for him to talk about technology was to make it a public good. That is the real weakness of the Solow model.

What endogenous growth theory is all about is that it took technology and reclassified it, not as a public good, but as a good which is subject to private control. It has at least some degree of appropriability or excludability associated with it, so that incentives matter for its production and use. But endogenous growth theory also retains the notion of nonrivalry that Solow captured.

As he suggested, technology is a very different kind of good from capital and labour because it can be used over and over again, at zero marginal cost. The Solow theory was a very important first step. The natural next step beyond was to break down the public good characterisation of technology into this richer characterisation – a partially excludable nonrival good. To do that you have to move away from perfect competition and that is what the recent round of growth theory has done. We needed all of the tools that were developed between the late 1950s and the 1980s to make that step.

,,, 

We know from Solow, and this observation has withstood the test of time, that even if investment in capital contributes directly to growth, it is technology that causes the investment in the capital and indirectly causes all the growth. Without technological change, growth would come to a stop.

… 

Too many words and no enough math?

Yes, and words are often ambiguous.

when you come to nonrival goods, we do not know what the right institutions are. It is an area that I think is very exciting because there is a lot of room for institutional innovation. One strategy is to work out a rough trade-off where you allow patent rights but you make them be narrow and have a finite duration. You would allow partial excludability — less than full but stronger than zero excludability. We often talk as if that is the general solution. But in fact, this is not the general solution. You have to break the question down by type of nonrival good.

There are some nonrival goods like the quadratic formula or pure mathematical algorithms that traditionally have been given no property rights whatsoever. There are other forms of nonrival goods like books. You will get a copy right for this book of interviews, which is a very strong form of protection. The text that you write and my words – you can take them and put a copyright on them so that nobody else can re-use them. I can not even re-use my own words without getting permission from you (laughter). So that is a very strong form of intellectual property protection.

What we need is a much more careful differentiation of different types of nonrival goods and an analysis of why different institutional structures and degrees of property protection are appropriate for different kinds of goods.

Patent rights or legal property rights are only a part of the story. We create other mechanisms, like subsidies for R and D. We create whole institutions like universities which are generally nonprofit and government supported, that are designed to try and encourage the production of ideas. The analysis of institutions for nonrival goods is more subtle than many people realise.

 If you want to encourage the production of ideas, one way is to subsidise the ideas themselves. But another way is to subsidise the inputs that go into the production of ideas.

In a typical form of second-best analysis, you may want to introduce an additional distortion – subsidies for scientists and engineers – to offset another – the fact that the social returns from new ideas are higher than the private returns. You create a much larger pool of scientists and engineers. This lowers the price of scientists and engineers to anybody who wants to hire their services to produce new ideas.

So in general, the optimal design of institutions is an unresolved problem. We have seen a lot of experimentation during the last 100 years. I have made the claim that the economies that will really do well in the next 100 years will be the ones that come up with the best institutions for simultaneously achieving the production of new ideas and their widespread use. I am quite confident that we will see new societal or institutional mechanisms that will get put in place for encouraging new ideas.

The real test is, does the theory give us some guidance in constructing institutions that will encourage growth? Does it help us understand what kinds of things led to difference between the growth performance of the UK and the US in the last one hundred years? If the theory gives us that kind of guidance then it has been successful and can help us design policies to improve the quality of peoples lives and that is an extremely important contribution.

Marketplace.Org, Oct 2018

Romer’s big breakthrough was this: He took models of economic growth and added a missing, magic ingredient.

Paul Romer put the production of ideas at the center stage of economic growth,” said MIT’s Scott Stern. Stern said ideas are different from a lot of other goods because they don’t get used up. “Either I eat an apple of you eat the apple, but we can all use calculus,” he said.

Sharing ideas, like the technology behind the internet, creates growth. Ideas need to be protected, at least a little, to reward people for coming up with them. So you have things like patents on new drugs, for example.

Romer put all this together in a concrete economic model with a major implication, said Chad Jones, a former colleague of Romer’s and a professor at Stanford University. Jones summarizes: “Economic growth is the result of these innovative efforts by entrepreneurs and scientists and researchers, and so anything that influences their effort can therefore affect our living standards in the long run,” he said.

Nobel Laureate Fringe Benefits

Source: WSJ, Oct 2018

Being named a Nobel laureate comes with recognition for breakthrough lifetime achievements, money, a gold medal and a trip to Stockholm. For some winners, it also brings free parking. Prize recipients at universities including Brown, Duke and the University of Southern California have won prime spots—many marked, “Reserved for Nobel Laureate.”

Danish scientist Niels Bohr may have gotten one of the most novel awards a few years after winning the 1922 Nobel Prize for physics: free beer for life.

The founder of Carlsberg, the Danish brewer, left his house as a lifetime residence “for a deserving man or woman within the fields of science, literature or art.” Dr. Bohr, known for his model of the hydrogen atom, moved in with his family in 1931, after the previous resident died.

The house came with an inexhaustible supply of the pilsner, company spokesman Kasper Elbjørn said, both in bottle and on tap.

The Lawrence Berkeley National Laboratory in Berkeley, Calif., has for decades named streets for its winners. The hilly 202-acre facility is dotted with signs for a dozen such stars, including Alvarez Road, Lee Road, McMillan Road, Perlmutter Road and Segrè Road. A few streets are still available for Nobel Prize recipients, a spokeswoman said.

 

Paul Romer wins the Economics Nobel Prize – Growth Theory

Nobel Prize Citation

This year’s Prize in Economic Sciences rewards the design of methods that address some of the most fundamental and pressing issues of our time: long-run sustainable growth in the global economy and the welfare of the world’s population.

The study of how humanity copes with limited resources is at the heart of economics and, since its inception as a science, economics has recognised that the most important constraints on resources reflect nature and knowledge.

Nature dictates the conditions in which we live and knowledge defines our ability to manage these conditions. However, despite their central role, economists have generally not studied how nature and knowledge are affected by markets and economic behaviour. This year’s laureates, Paul M. Romer and William D. Nordhaus, have broadened the scope of economic analysis by designing the tools that are necessary to examine how the market economy has a long-term influence on nature and knowledge.

Knowledge For more than a century, the overall global economy has grown at a remarkable and fairly steady pace. When a few per cent of economic growth per year accumulates over decades and centuries, it transforms people’s lives. However, growth has progressed much more slowly throughout most of human history. It also varies from country to country. So what explains when and where growth occurs? Economics’ conventional answer is technological change, where the growing volumes of knowledge are embodied in technologies created by inventors, engineers, and scientists.

In the early 1980s, when he was a PhD student at the University of Chicago, Paul Romer started developing the theory of endogenous growth, where technological advances do not just flow in from external – exogenous – sources, as assumed in earlier economic models. Instead, they are created by purposeful activities in the marketplace. Romer’s findings allow us to better understand which market conditions favour the creation of new ideas for profitable technologies. His work helps us design institutions and policies that can enhance human prosperity by fostering the right conditions for technological development.

Technological innovation  – Motivation

Long-term differences in growth rates have staggering consequences when they occur. If two economies start out with equal GDP per capita, but one grows at a 4 per cent higher rate, it will become almost five times richer in 40 years. A more modest 2 per cent growth advantage translates into twice as much national income in 40 years.

In the late 1980s, Romer observed that the income growth rates in actual data vary greatly from country to country. Figure 1, based one of Romer’s papers, depicts income per capita in 1960 and the average growth for the subsequent 25 years for over 100 countries; a graph with contemporary data looks virtually identical. Each square represents a country. As the figure shows, typical growth-rate differences between countries were several percentage points, and there is a huge gap – around ten percentage points – between the fastest and slowest growing countries. Moreover, the figure shows no systematic relationship between initial income and growth: some poor countries grow rapidly, while others actually shrink.

Romer concluded that understanding the causes of such persistent and ignificant growth-rate differences is crucially important, and started looking for an explanation.

Empirical and theoretical shortcomings As Romer noted, the dominant growth theory at the time – the Solow growth model, which received the Prize in Economic Sciences in 1987 – could explain many features of economic growth, but not large and persistent differences in growth rates. The Solow model predicts that poorer countries should grow faster and catch up with richer ones quite quickly, which is not what Figure 1 shows. In the model, an economy can grow by accumulating physical capital, for example machines or infrastructure, but capital-driven growth must peter out in the longer term; for any given technology, adding more capital yields less and less additional output. To allow for persistent long-run growth (and growth differences) in the model, the assumption has to be that, over time, labour becomes increasingly productive due to technological advances, although at varying rates for each country.

Therefore, the Solow model does not explain these trends, because changes in technology simply arrive exogenously from a “black box”.

A major breakthrough Romer’s biggest achievement was to open this black box and show how ideas for new goods and services – produced by new technologies – can be created in the market economy. He also demonstrated how such endogenous technological change can shape growth, and which policies are necessary for this process to work well. Romer’s contributions had a massive impact on the field of economics. His theoretical explanation laid the foundation for research on endogenous growth and the debates generated by his country-wise growth comparisons have ignited new and vibrant empirical research. 

What’s special about ideas-driven growth? To answer that question, we must understand how ideas are different to goods such as physical or human capital. Romer taught us to think about goods using two dimensions, as in Figure 2. 

In the first dimension, physical and human capital are rival goods. If a particular machine, or a trained engineer, is used in one factory, the same machine or engineer cannot be used at the same time in another factory.

Ideas, on the other hand, are non-rival goods: one person or firm using an idea does not preclude others from using it too. In the second dimension, these goods may be excludable if institutions or regulations make it possible to prevent someone from using them. For some ideas, such as results from basic research, this is difficult or even impossible – think about mathematical insights like the Pythagorean Theorem For other ideas, however, users can be excluded through technical measures (such as encryption) or patent laws. Romer’s breakthrough article showed how the rivalry and excludability of ideas determine economic growth.

Romer believed that a market model for idea creation must allow for the fact that the production of new goods, which are based on ideas, usually has rapidly declining costs: the first blueprint has a large fixed cost, but replication/reproduction has small marginal costs. Such a cost structure requires that firms charge a markup, i.e. setting the price above the marginal cost, so they recoup the initial fixed cost. Firms must therefore have some monopoly power, which is only possible for sufficiently excludable ideas.

Romer also showed that growth driven by the accumulation of ideas, unlike growth driven by the accumulation of physical capital, does not have to experience decreasing returns. In other words, ideas-driven growth can be sustained over time.

Market imperfections and policy

In principle, the new knowledge created by successful research and development, R&D, can benefit entrepreneurs and innovators anywhere in the world, now and in the future. However, markets generally do not fully reward the creators of new knowledge for the full benefits of their innovations, which means that – as long as the new knowledge is socially beneficial – too little R&D is conducted.

Furthermore, as market incentives for R&D come in the form of monopoly profits, there will typically be inadequate provision of new goods once they have been invented. Subsequent research has shown how market outcomes may also entail too much R&D – either when new ideas kill off too many existing firms in a process of creative destruction, or when new ideas augment socially harmful technologies, such as by enabling excessive extraction or use of fossil fuels, thus harming the climate.

To summarise, Romer showed that unregulated markets will produce technological change, but tend to underprovide R&D and the new goods created by it. Addressing this under-provision requires well-designed government interventions, such as R&D subsidies and patent regulation. His analysis says that such policies are vital to long-run growth, not just within a country but globally. It also provides guidelines for policy design: patent laws should strike the right balance between the motivation to create new ideas, by giving some monopoly rights to developers, and the ability of others to use them, by limiting these rights in time and space.

Related Resources:

Extended Writeup by the Nobel Prize Foundation, Oct 2018

Fullscreen capture 1092018 33243 AM.bmp

Bloomberg, Oct 2018

His work published in 1990 has served as the foundation for what’s called “endogenous growth theory,” a rich area of research into the regulations and policies that encourage new ideas and long-term prosperity.

Romer said he started investigating why economic growth was speeding up and came to realize in part it was due to the fact that more people were connected by technology. “Globalization is just not about trading stuff,” he said at a press conference in New York. “It’s about sharing ideas.”

QZ, Oct 2018

Romer said he hoped that the prize would spread the message that “people are capable of amazing things when we set about doing something.” Romer’s work centers on how the accumulation of ideas sustains growth, and how technology develops in a market economy.

Romer’s research has promoted so-called endogenous growth theory (pdf), which describes how investments in human capital, innovation, and knowledge are significant contributors to economic growth. Since the 1990s, Romer has demonstrated how economic forces govern the willingness of firms to produce new ideas that lead to breakthrough innovations.

See here for a live version of chart:

https://ourworldindata.org/grapher/GDP-per-capita-in-the-uk-since-1270 

Larry Summers had 2 Uncles who were Nobel Laureates!

Source: Larry Summers website, Jul 2017

I remember the fall night in 1972, after Kenneth (Arrow) was awarded the Nobel Prize. The other American Nobel Prize winner at that moment, Paul Samuelson, also my uncle, hosted a party for Kenneth and the Cambridge economics community. I was a sophomore economics major at MIT, so I was hardly appropriate company for such an august gathering, but I was a little unique in being related to both the host and the honoree.

There were two people in that room who wanted to discuss economics for the longest period of time, with the least regard for social exigencies. And those were the two people in that room who had won the Nobel Prize.

Kenneth Arrow, 1972

Paul Samuelson, 1970