William Nordhaus (Yale) and Paul Romer (NYU) share the 2018 Sveriges Riksbank Prize in Economic Sciences for their respective work on climate change economics and endogenous growth, a prize rewarding their commitment to these very important issues.
Nordhaus pioneered in the early 1990’s the first integrated assessment model aimed at representing the interplay between economics and climate change from the perspective of economic growth theory. Principal output of the DICE-RICE model is an integrated tool for the analysis of optimal consumption paths to prevent desastrous climatic events. Nordhaus made all relevant computer codes publicly available in 1999, and many economic analyses and debates flourished on this ground. In particular, the model and its extensions were widely used by the environmental economics research community, international agencies and the IPCC.
Romer’s work initiated substantial research on the determinants of long-run economic growth. Romer’s 1990 seminal paper on endogenous growth theory deeply influenced the economics community. He modeled how economic decisions and market conditions affect the emergence of new technologies that promote long-term growth. His research underlined the critical role of governmental actions, such as taxation or protection of intellectual property rights to maintain a positive growth rate in the long run. It generated vast amounts of studies on regulations and policies to foster technological innovations.