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Predictions for the 2015 Nobel Prize

At the beginning of ‘Nobel Week,’ HSE Professor Konstantin Sonin gave his traditional prediction on his blog, forecasting who might win this year’s Nobel Prize in Economics. The winner will be determined on October 12.

One of the main problems with making predictions for the Nobel Prize is that the prize doesn’t change much from year to year. A scientist who was a real contender last year might lose his or her position among nominees for two reasons – first because they might actually win the prize, and second because they might die. Unlike the natural sciences, where there have been laureates of a single ‘breakthrough,’ nominees for the Nobel Prize in Economic Sciences are people who changed the course of science at least two or three decades ago. Accordingly, not much can happen to one’s academic reputation in just a year.

I made use of this in previous years. From year to year, the list didn’t change considerably, but I’ve now decided to make serious revisions to it. Really, the idea behind my prediction is to allow the reader to go down the list and learn more about what the real titans of our science have done and are doing. Each article guarantees an interesting read, so read the forecasts from previous years to find out why Avinash Dixit and Elhanan Helpman, or Anne Krueger and Martin Feldstein might receive the Prize… But here is this year’s prediction:

(1) Daron Acemoglu (MIT) and James Robinson (University of Chicago) for their research on the role of institutions in economic development. Two years ago, I wrote a small review on the scientific works the popular book Why Nations Fail is based upon. This book is just a small part of the research conducted by Daron and James. The two can be thought to have created contemporary institutional economics, which has replaced North and Fogel’s ‘new institutional economics.’ 

The difficulty with such a forecast is that Daron might of course receive the Nobel Prize with someone else as well – with Paul Romer, for example, or with Robert Barro for growth theory. Acemoglu’s main contribution to science is his research on technological development. Before him, technological development as a growth factor had always been analysed as something that concerned the economy as a whole, not its separate sectors. It is not at all clear, for example, how technological development affects the salaries of low-skilled and highly skilled workers. It’s worth thinking about, and it will be clear that this could go up or down. But Daron has models whose balances are very well described by the results of existing natural experiments.

Acemoglu and Robinson might also receive the prize for political economics. On one hand, this prize would be difficult to imagine without Harvard’s Andrei Shleifer (who might also receive the prize for an entire array of other areas), Alberto Alesina (also from Harvard), and Guido Tabellini of the University of Bocconi. But how can you give the Prize to Tabellini without giving it to his regular co-author Torsten Persson? This is impossible, actually, as Torsten is the Secretary of the Committee for the Prize in Economic Sciences.

(2) Paul Romer (New York University) and Robert Barro (Harvard) for their research on contemporary economic growth. This is a repeat from last year, but I think he is still on his way towards the Prize because of growth theory. Three years ago, there was a ‘Nobel Symposium’ on growth, and this is just one of several promising signs. Romer constructed the first endogenous growth model, and without models like this it would be impossible to explain the growth of developed countries in the second half of the 20th century. Aside from theory, Barro has done a lot in growth empiricism. Both Paul and Bob are not only outstanding scientists, but they are also indefatigable writers. In their blogs and columns, you can read about both concrete issues in economic policy, as well as critiques on academia. They don’t give prizes for writing, but still…

(3) John List (University of Chicago) and Charles F. Manski (Northwestern) for using experimental methods to check basic models of the economic sciences. On one hand, ‘checking’ basic models and assumptions, even using the most contemporary methods, is by definition a modest endeavour. But on the other, List is an absolute leader in the 21st century economic revolution, when experiments are not only natural (like they’ve always been), but also field-based with laboratories becoming an important part of the research process. I would pay special attention to ‘fieldwork’ – List’s speciality – because this is the simplest and most obvious tool that can be used to test whether there is a causal relationship that theory can predict.

What is a field experiment? Instead of a laboratory (Vernon Smith won the Nobel Prize for lab experiments in 2002), you use something that takes place in real life without an experiment. A special component is added to this, such as a carefully selected ‘random event.’ Let’s say that the government is deciding whether or not to introduce a new educational programme. If the programme is introduced at all schools, it will be impossible to determine how or if it impacts academic progress. If, however, you introduce the programme at pilot schools, then it will be difficult to use the ‘pilot’ to determine how the programme will work at other schools because it might be that the pilot schools are not representative of all types of schools as concerns this new programme. In our country, randomized experiments are not used to assess school programmes (and this relates to any large-scale project), which is too bad. This is the kind of technical lag that is similar to banning officials from using mobile communication. (Life would go on, but efficiency would fall.)

List's homepage is an endless source of examples of field experiments that can be used to teach introductory economics courses (and List highly recommends doing this).

Thomas Reuters, which predicts Nobel winners based on number of citations (and this is not a simple endeavour, as all real contenders in economics have a huge number of citations), said List is one candidate for this year’s prize, while Manski is another (separately). But I would actually combine the two because while Manski might spend less time and effort on experiments themselves, the problems he works on are the same – if we see some sort of correlation in data, then how do we determine what the cause is and what the effect is?

(4) Robert Townsend (MIT) for applied analysis on problems in economic development. Over the last 20 years, economists have gained a better understanding of development at not only the macro level (like Acemoglu and Robinson), but at the micro level as well. Townsend is a pioneers and one of the most in-depth researchers on how, for example, access to finances in Southeast Asian countries – villages rather – impacts economic development. The more well-known and popular researchers in this field were probably Townsend’s students.

(5) Olivier Blanchard (MIT) and Stanley Fischer (Federal Reserve), as well as Gregory Mankiw and Kenneth Rogoff of Harvard University. Yes, yes, I know that they can’t give all four people a prize for research and for the practical application of macroeconomic models, but pick any of the three as you wish. These are probably the most influential macroeconomists in the world from an intellectual standpoint. Rogoff is probably the most expensive speakers to hire as far as academic economics is concerned. I’ve actually already told one story about how he asked us at dinner once whether or not the heads of the Central Bank and Finance Ministry had attended his free lecture at the New Economic School. When we said no, he replied: ‘It’s strange… They pay 15,000 for a spot at my seminar, but these are precisely the same slides and the same exact lecture as at the free lecture…’ Rogoff is internationally renowned and the author of the popular book This Time is Different.

Students use Mankiw’s economics textbook all around the world (and it’s the best place to start). He is a well-known ‘voice’ among republican economics, but he’s also the author of an incredible number of articles (400?), including mine and probably many economists’ favourite, which begins with the words, ‘This paper takes Robert Solow seriously.’ And I myself studied macroeconomics (at the graduate level) using the textbook by Blanchard and Fischer, actually, who were the teachers of, I believe, half of the world’s central bank economists, including our own. There was a good article – strange title though – published today in the Washington Post about Blanchard in connection with his resignation from the position of Chief Economist of the IMF. Both Krugman and Mankiw recommended the article on their blogs, which is noteworthy because they are almost always against it. But I think a prize for macroeconomists, particularly specialists in monetary economics, is a long time coming.

Ugh, I wouldn't want to be the one selecting from such tremendous options. But there’s also a fifth one – Ben Bernanke (Brookings Institute), who is worthy of the prize in this area. Not for serving as the Chairman of the Federal Reserve, during which time he had to act in accordance with theory and history under extremely unusual circumstances. (In the undergraduate macroeconomics textbook I used in my first year at the New Economic School 20 years ago, ‘liquidity trap’ is mentioned in a footnote as a theoretical fad relating to the distant past, perhaps several decades). All the while a sea of ‘practitioners’ were on about the idea that the Fed’s actions would lead to high inflation. Bernanke is worthy of the prize not for his leadership at the Fed, though it was outstanding and this is why they give out awards, why they invite him to speak at forums, and the main thing, why they listen. His prize would be for his research on the history of monetary policy (yes, this is a new factor compared to what Milton Friedman got the prize for). And this means that Blanchard and Fischer might actually be in the same boat at Bernanke.

 

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