Tuesday, October 6, 2009

Nobel Prize in Economics

We're getting within a few days of the announcement of the Nobel Prize in Economics, which is an award funded not out Alfred Nobel's estate but rather by a Swedish Bank. Nonetheless, it is treated in much the same way as the other Nobel prizes.

Since they don't do posthumous awards (at least they haven't up till now) the pool of potential candidates is not so large that one can speculate on the winners. For the last several years I've forecasts William Baumol as a potential winner, since he has made many and varied contributions. Among them, he is known for Baumol's Cost Disease, a possible explanation for why higher education costs have gone up fast than inflation over a long period of time.

A couple of years ago, I had the weird but bun experience of seeing a Nobel Prize winner whom I had as a professor when I was in graduate school. Roger Myerson was a brand new assistant professor at Northwestern when I took a course in non-linear programming from him. That was not his research. Myerson is a game theorist and is known as one of the co-founders of the Revelation Principle, which probably will have no meaning to you, but it is very useful to economists who are trying to understand what incentives are necessary in a particular environment and further that it is necessary to sacrifice some efficiency in result in order to get the right incentives. (A simple example - it has long been understood that airlines make the seating in coach inefficiently uncomfortable for the coach passengers in order that they get some passengers willing to pay for first class seats.) Myerson shared the prize with others. Below is the announcement.

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