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Wednesday, March 24, 2010

Who has been most unfairly treated by the Nobel Memorial Prize in Economics Committee ?

I'd say Kenneth Arrow. There are people who deserve the prize and haven't received it, but he has only received one single solitary Nobel memorial prize which means they owe him ... well let's count.

1. The market for lemons. I was pleased when Akerlof got the prize, but it is a fact that Arrow described the adverse selection problem in 1970 and explaine why this means the market is unsuited to the provision of health insurance.

2. The Arrow impossibility theorem. People had been trying to design a good electoral system for centuries when Arrow managed to brilliantly define the necessary properties of such a system and easily prove it didn't exist.

3. Stochastic dynamic general equilibrium theory. This is due to Arrow and Debreu who generalized the one period general equilibrium model to a stochastic inter-temporal model. What exactly did Kydland and Prescott add ? They simulated a very special case. Arrow gets bonus points for noting that the assumption of rational expectations in the Arrow-Debrue model is implausible.

4. Yeah rational expectations. Why did Lucas win the prize ? He said the Lucas supply function has nothing to do with the business cycle, so what's left is applying rational expectations to a model of the whole economy. That is Arrow and Debreu (I have never understood why general equilibrium theory is called micro not macro).

5. Maybe there should be a prize for endogenous growth theory (I'm not saying their should be). If so, Arrow should share it as he developed the Romer 86 model in 1962 (he wasn't the first).

I don't think so, so I think Arrow has been robbed of only 4 prizes.

The Nobel prizes in the sciences are given for a discovery. There is no limit of one per customer (Curie, Sanger, Bardeen I don't know who else). The Nobel prize in economics is given for being a very prominent economist. Awarding Arrow a well deserved second prize would help change this. Also he certainly seems to be a nice guy.

1 comment:

Anonymous said...

1) Apropos the Mkt for Lmns, which you credit to Arrow in 1970:

Akerlof writes:

I wrote "The Market for 'Lemons,'" (a 13-page paper for which I was awarded the Prize in Economics) during my first year as assistant professor at Berkeley, in 1966-67.* "Lemons" deals with a problem as old as markets themselves. It concerns how horse traders respond to the natural question: "if he wants to sell that horse, do I really want to buy it?" Such questioning is fundamental to the market for horses and used cars, but it is also at least minimally present in every market transaction.

Since 1967<1970, it is appropriate that Akerlof receive it, no?

4) You wrote: (I have never understood why general equilibrium theory is called micro not macro)

Because people think that macro must deal with aggregates rather than fluctuations and growth, i.e, economy-wide movements that can be studied with either aggregate or disaggregated data.