William D. Nordhaus and Paul N. Romer Won Nobel Prize for Work on Innovation, Climate, and Economic Growth - 2018
William Nordhaus is Sterling Professor of Economics at Yale and a research associate in four NBER programs: Economic Fluctuations and Growth, Environment and Energy, Productivity/ Innovation/ Entrepreneurship, and Public Economics. His initial NBER affiliation dates to the late 1960s, and he has been a research associate since 1979. Paul Romer is a professor of economics at NYU's Stern School of Business, where he directs the Urbanization Project. He is a research associate in the NBER's Economic Fluctuations and Growth Program, which he joined in 1987.
Nordhaus and Romer, both of whom have been NBER research associates for more than three decades, were awarded the 2018 Nobel Prize in Economic Sciences. The prize recognizes their contributions to the economic analysis of long-term growth, in particular Nordhaus's work on the interaction between economic growth and global climate, and Romer's work on the way market forces affect the rate of innovation and technical change.
The laureates "have designed methods for addressing some of our time's most basic and pressing questions about how we create long-term sustained and sustainable economic growth," the Royal Swedish Academy of Sciences said in a statement announcing the award. Nordhaus and Romer "have significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge."
The academy drew important parallels between research on the links between long-run economic growth and innovation and research on growth and climate change. The effects of economic activity in both cases have global consequences. The generation of new knowledge expands production opportunities everywhere, just as changes in global climate have worldwide effects. In both settings, unregulated market outcomes may fail to reflect important factors that bear on long-term welfare. In regard to innovation, market prices may not reflect the full future value of the welfare gains associated with a new idea. With regard to climate, prices may not incorporate the costs or benefits that actions taken today impose on future generations. In both cases, there may be welfare-improving public policy interventions.