Economics Nobel For Research On Importance Of Societal Institutions For Economic Prosperity

Carrying on with their work on institutional economics, Acemoglu jointly wrote another magnum opus Power and Progress: Our Thousand-Year Struggle over Technology and Prosperity with the third recipient Simon Johnson.

The Royal Swedish Academy of Sciences in Stockholm, which decides the Sveriges Riksbank Prize in Economic Sciences (commonly known as the Nobel in Economics), announced the trio's names as the Nobel Prize winners on Monday.

The prize will be formally presented to the three economists on December 10. It comes with a cash award of 11 million Swedish kronor (US$ 1.57 million).

While Acemoglu and Johnson are from Massachusetts Institute of Technology (MIT), Robinson is from University of Chicago.

This year’s laureates in the economic sciences have worked throughout their careers to underline the importance of societal institutions for a country’s prosperity.

"Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better," the award organisers said on their website.

Link Between Institutions And Prosperity

The new laureates argue that development differences across countries are mainly due to qualitative differences in the political and economic institutions of those countries, rather than cultural, geographical, or due to ignorance.

According to them, democracy consolidates when ruling elites do not have strong incentives to overthrow it. Consolidation of democracy depends on the strength of civil society, the structure of political institutions and the economy, and the level of economic inequality — among other factors.

Some countries get trapped in a situation with exclusive institutions serving the interest of the elites and a resultant low economic growth, the winners argued in their work.

The introduction of inclusive institutions would create long-term benefits for everyone, while extractive institutions provide short-term gains for the people in power.

Need For Democratic Institutions 

As long as the political system guarantees that the elites remain in control, no one will trust their promises of future economic reforms. According to the laureates, this is why no improvement occurs.

However, this inability to make credible promises of positive change can also explain why democratisation sometimes occurs.

When there is a threat of revolution, the people in power face a dilemma. They would prefer to remain in power and try to placate the masses by promising economic reforms, but the population are unlikely to believe that they will not return to the old system as soon as the situation settles down.

In the end, the only option may be to transfer power and establish democracy.

Hailed By The Economist Fraternity

“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.

Congratulating the winners, London School of Economics Professor Luis Garicano wrote on X: "Key lesson: countries that grow are those where inclusive institutions safeguard political and economic rights and limit the power of elites to expropriate citizens' rights."

Harvard Professor Dani Rodrik also praised them on X: "They revived and made cool again the study of institutions in mainstream economics. Their work stimulated a huge literature that grows by the day."

The economics award is not one of the original categories laid out by Swedish philanthropist Alfred Nobel, when he bequeathed his fortune to establish the prize some 130 years ago.

It was created later in the late 1960s by Sweden's central bank, and is formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Some 93 people have been awarded the prize since its creation in 1968, including two Indian-borns — Amartya Sen and Abhijit Vinayak Banerjee.