Romer of NYU and Nordhaus of Yale Share Nobel Prize in Economics

TO REVERSE CLIMATE CHANGE, the world first must understand both the economic forces that drive it—and those that could lead to potential solutions. This idea has long underpinned the research of the 2018 recipients of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. In October, the Royal Swedish Academy of Sciences announced that Paul Romer, on leave at New York University’s Stern School of Business in New York City, and William Nordhaus, the Sterling Professor of Economics at the Yale School of Management in New Haven, Connecticut, would share the prize.

 

Romer joined NYU Stern in 2010. In 2011, he founded the NYU Stern Urbanization Project, which is dedicated to studying how policymakers in the developing world can channel urban growth to create economic opportunity and pursue social reform. Romer also has directed NYU’s Marron Institute of Urban Management, which works with civic innovators to make cities safer, healthier, more mobile, and more inclusive. He is known for his contributions to endogenous growth theory, which holds that economic growth is driven by internal forces—such as population growth and human innovation—rather than external factors.

 

On Yale’s faculty since 1967, Nordhaus has studied issues ranging from the political business cycle to the effect of resource constraints on economic growth— but some of his most prominent work has involved studying efficient economic models for coping with the effects of climate change. In addition to his post at the Yale School of Management, he serves as a professor in the university’s School of Forestry and Environmental Studies.

Nordhaus is well-known for his 1996 study tracing the economic history of lighting, from the oil lamps of Babylonian times to the LED light bulbs of today; in the study, Nordhaus tracked how advancements in illumination have led to innovation and long-term economic growth. Currently, he directs the G-Econ Project, an ongoing effort to provide comprehensive measures of economic activity in regions around the world, based on their geography. (Learn more.)

The application of economics principles could be the only way to solve large-scale problems like climate change, Nordhaus said at Yale’s press conference announcing his win. When asked whether the world should look to the markets for solutions to climate change, Nordhaus was unequivocal. “There basically is no alternative to a market solution,” he said. “There are billions of individuals, millions of firms, thousands of governments, and hundreds of nations [in the world], and for them to take action, they’re going to have to have incentives. … We have to raise the prices of goods and services that are carbon intensive and lower the ones that are less carbon intensive.”

Romer, however, believes the best solutions will come from smart urban planning, not necessarily from business and economic applications. Urbanization “operates on a scale which is beyond a scale that almost anybody who’s getting an MBA” will engage with, Romer said. “Even the biggest firms are not even close to what cities are like.” If the world is to respond effectively to alarming trends such as climate change and human population growth, it will need “very big plans,” he added. He referred to the 1811 plan for New York City as an example—a plan municipal leaders used to expand the city’s footprint and create the grid it still has today. Such large-scale plans, he argued, work best when they are not micromanaged. “You’ve got to rely on people to fill in a lot of the details, and that’s really not indicative of the kind of problems that most people in businesses face.”

When Nordhaus was asked whether he was optimistic that the world could reverse climate change, he said that he viewed the current hostility in the United States toward climate change science and environmental policy as “anomalous”—a phase that soon would pass.

“Outside the United States, there’s pretty widespread acceptance of the science and even the economics behind climate change views,” Nordhaus said. “I think we just need to get through what is a difficult period. But I’m extremely confident that will happen. We’re not going to stop climate change—there’s a lot of momentum there, and like a super tanker, it will take a long time to slow it down. But I think it’s something we can do.”