Paul Romer, who began his career at the University of Rochester has been named a recipient of this year’s Nobel Prize in Economic Sciences.
Currently a professor at New York University, Romer and William Nordhaus, a professor of economics at Yale University, will share the 2018 prize announced by the Royal Swedish Academy of Science.
The Nobel Committee recognized Romer for his work on the economics of technological change. “Previous macroeconomic research had emphasized technological innovation as the primary driver of economic growth, but had not modeled how economic decisions and market conditions determine the creation of new technologies. Paul Romer solved this problem by demonstrating how economic forces govern the willingness of firms to produce new ideas and innovations.”
The committee also cited Romer’s work to develop what is now known as the “endogenous growth theory.” First outlined in a 1990 paper, the theory tries to account the influence of new technology on economic growth and the economic forces that influence the adoption of new technologies.
George Alessandria, the chair of Rochester’s Department of Economics, says the members of the department are thrilled that Romer is being recognized with the Nobel Prize.
“Paul’s first job was at Rochester, where he did pathbreaking work to figure out how firms’ decisions to invest in research and development lead to economic growth,” Alessandria says.
That work identified a key failure of private markets that leads to too little investment and growth.
“His work suggests a key role for the government in protecting the property rights of innovators and subsidizing research. This was a big advance that remains central to our study of growth and policy today,” Alessandria says.
Mark Bils, the Hazel Fyfe Professor in Economics, briefly worked with Romer in Rochester. Bils points out that the paper which largely earned Romer the Nobel Prize, “Endogenous Technological Change,” was written while Romer was at UR.
“Paul wrestled with how firms get rewarded for the high upfront costs of innovating. Paul’s answer, that the return to research requires market power and possibly government incentives, freed the growth literature to incorporate how technology grows, not just how physical and human capital accumulate.”
An assistant professor of economics at Rochester from 1982 to 1988, Romer went on to appointments at the University of Chicago, the University of California at Berkeley, and Stanford University before his appointment at NYU’s Stern School of Business. The 12th Rochester Nobelist, Romer is the third 2018 laureate with ties to Rochester.