Tuesday, October 11, 2016
The 2016 Economics Nobel Prize and Social Democracy
Avner Offer has a recent book that I am about to read about the conservative origins of the Economics Nobel Prize. He has summarized his arguments in a recent article in The Guardian. After this book and article were published, this year's Economics Nobel Prize has been awarded to Oliver Hart and Bengt Holmstrom (two immigrants in the US, as most Nobel prize winners of all disciplines are). Their theories of property rights and incentives are certainly not the Bible of social democracy, but should be an ingredient of any modern version of it. For example, Hart's insight that quality issues are not automatically well dealt with in a privatization has been influential in reversing the trend towards prison privatization in several countries, including the United States. And Bengt Holmstrom contributed to a very interesting report a few years ago about "The Nordic Model." In this report, the authors, including Holmstrom, wrote very much in defense of the great achievements of Scandinavian social democracy, and presented a number of proposals to update the model to keep its essential features in the face of globalization. Prof. Holmstrom wrote the parts on the need to improve the productivity of the public sector, and how carefully thought incentives and public private partnerships could contribute to this objective. I don't know if the current Nobel committee leans more towards social democracy or otherwise, but it clearly likes research on incentives, as Holmstrom and Hart are just the last in a list that includes Mirrlees, Hurwicz, Tirole and others. Perhaps in the future they can also have a look at theories and empirical evidence that looks at intrinsic and non-monetary incentives and how institutions shape and provide context to performance-based incentive contracts. Then they would have to give the Nobel probably to some really left wing economist and Avner Offer would have to write a new book.