Nobel Economics Prize awarded for research into differences in prosperity between nations

Stockholm [Sweden], Oct 14: The Royal Swedish Academy of Sciences on Monday has decided to award the 2024 Nobel Prize also known as the Sveriges Riksbank Prize in Economic Sciences to Daron Acemoglu, Simon Johnson and James A. Robinson "for studies of how institutions are formed and affect prosperity."

This year's laureates have demonstrated the importance of societal institutions for a country's prosperity.

The laureates have contributed innovative research about what affects countries' economic prosperity in the long run. Their insights regarding how institutions influence prosperity show that work to support democracy and inclusive institutions is an important way forward in the promotion of economic development, the Royal Swedish Academy of Sciences said.

Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better. The laureates' research helps us understand why.

"Reducing the vast differences in income between countries is one of our time's greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this," says Jakob Svensson, Chair of the Committee for the Prize in Economic Sciences.

By examining the various political and economic systems introduced by European colonisers, Daron Acemoglu, Simon Johnson and James A. Robinson have been able to demonstrate a relationship between institutions and prosperity. They have also developed theoretical tools that can explain why differences in institutions persist and how institutions can change.

This year's laureates have found new and convincing evidence for one explanation for the persistent gap - diferences in a society's institutions.

They explain how the richest 20 per cent of the world's countries are now around 30 times richer than the poorest 20 per cent. Moreover, the income gap between the richest and poorest countries is persistent; although the poorest countries have become richer, they are not catching up with the most prosperous.

To arrive at their answer, the laureates used an innovative empirical approach.

In one of their works, the laureates use the city of Nogales, on the border between the USA and Mexico, as an example.

They examine why the two halves of the same city have such vastly different living conditions despite geographically similar factors such as the climate and historical similar origins as well as cultural similarities like people eating similar food and listening to more or less the same kind of music. The decisive difference is thus not geography or culture, but institutions according to the laureates research.

This year's laureates have shown that the divided city of Nogales is not an exception. Instead, it is part of a clear pattern with roots that go back to colonial times.

The introduction of more inclusive institutions, less extraction and the rule of law would create long-term benefits. So why don't the elite simply replace the existing economic system?

The laureates' model for explaining the circumstances under which political institutions are formed and changed has three components. The first is a conflict over how resources are allocated and who holds decision-making power in a society (the elite or the masses). The second is that the masses sometimes have the opportunity to exercise power by mobilising and threatening the ruling elite; power in a society is thus more than the power to make decisions. The third is the commitment problem, which means that the only alternative is for the elite to hand over decision-making power to the populace.

While Acemoglu and Johnson work at the Massachusetts Institute of Technology and Robinson conducts his research at the University of Chicago.

The Nobel Economics Prize has been awarded 56 times to 96 laureates between 1969 and 2024. The prize was awarded to American economist Claudia Goldin last year.

The prize is based on a donation received by the Nobel Foundation in 1968 from Sveriges Riksbank on the occasion of the bank's 300th anniversary. The prize amount is the same as for the Nobel Prizes and is paid by the Riksbank. The first prize in economic sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

Today's announcement marks the end of six days of announcements of the Nobel Prize which has also honoured medicine, physics, chemistry, literature and peace.