Nobel Economics Prize awarded to William Nordhaus and Paul Romer

Two researchers have won the Nobel Economics Prize for integrating climate change and innovation into macroeconomic analysis.

NYU economist Professor Paul Romer speaking at the Northern Development Summit at Townsville Entertainment Centre.

Two American researchers have been awarded the Nobel Prize for Economics for studying the interplay of climate change and technological innovation with economics.

William Nordhaus of Yale University and Paul Romer of New York University were ­announced winners of the 9 million kronor ($1.4 million) prize last night by the Royal Swedish Academy of Sciences.

“Their findings have significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge,” the academy said.

It said Professor Romer’s work “explains how ideas are different to other goods and require specific conditions to thrive in a market”.

Previous macroeconomic research had emphasised technological innovation as a driver of growth but had not modelled how market conditions and economic decisions affected creation of new technologies, the academy said.

Professor Romer’s work showed “economic forces govern the willingness of firms to produce new ideas and innovations”.

Professor Nordhaus in the 1990s became the first person to create a model that “describes the global interplay between the economy and the climate”, the academy said.

He showed that “the most ­efficient remedy for problems caused by greenhouse gases is a global scheme of universally imposed carbon taxes”.

Professor Nordhaus has also studied wage and price behaviour, health economics, augmented ­national accounting, the political business cycle, productivity, and the “new economy”.

His current work on what he calls his “G-Econ project” promises to provide the first comprehensive measures of economic activity at a geophysical scale.

He has been a faculty member at Yale since 1967.

The economics prize is the last of the Nobels to be announced this year. Last year’s prize went to American Richard Thaler for studying how human irrationality affects economic theory.

The economics prize was ­established in 1968, not being part of the original group of five awards set out in Swedish industrialist Alfred Nobel’s 1895 will.

Whether economics is a genuine science in the sense of the ­Nobels awarded for accomplishments in medicine, chemistry and physics can be debated; the award often goes to work that has a high level of abstraction.

“This year’s laureates do not deliver conclusive answers, but their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth,” the academy said.

The Nobel prizes for physiology or medicine, physics, chemistry and peace were awarded last week. But the awarding of the literature prize has been postponed to give the Swedish academy time to restore public trust after a sexual assault scandal.

AP, Reuters