"William Nordhaus and why he won the Nobel Prize in economics"

From Marginal Revolution:

These are excellent Nobel Prize selections, Romer for economic growth and Nordhaus for environmental economics.  The two picks are brought together by the emphasis on wealth, the true nature of wealth, and how nations and societies fare at the macro level.  These are two highly relevant picks.  Think of Romer as having outlined the logic behind how ideas leverage productivity into ongoing spurts of growth, as for instance we have seen in Silicon Valley.  Think of Nordhaus as explaining how economic growth interacts with the value of the environment.  Here is their language:

• 2018 Sveriges Riksbank Prize in Economic Sciences is awarded jointly to William D Nordhaus “for integrating climate change into long-run macroeconomic analysis” and Paul M Romer “for integrating technological innovations into long-run macroeconomic analysis”.

Both are Americans, and both have highly innovative but also “within the mainstream” approaches.  So this is a macro prize, but not for cycles, rather for growth and long-term economic prospects.  Here is the Prize committee citation, always well done.

Both candidates were considered heavy favorites to win the Prize, sooner or later, and these selections cannot come as a surprise.  Perhaps it is slightly surprising that they won the Prize together, though the basic logic of such a combination makes good sense.  Here are previous MR mentions of Nordhaus, you can see we have been mentioning him for years in connection with the Prize.

Here is the home page of Nordhaus.  Here is Wikipedia.  Here is scholar.google.com.  Here is Joshua Gans on Nordhaus.

Nordhaus is professor at Yale, and most of all he is known for his work on climate change models, and his connection to various concepts of “green accounting.”  To the best of my knowledge, Nordhaus started working on green accounting in 1972, when he published with James Tobin (also a Laureate) “Is Growth Obsolete?“, which raised the key question of sustainability.  Green accounting attempts to outline how environmental degradation can be measured against economic growth.  This endeavor is not so easy, however, as environmental damage can be hard to measure and furthermore gdp is a “flow” and the environment is (often, not always) best thought of as a “stock.”

Nordhaus developed (with co-authors) the Dynamic Integrated Climate-Economy Model, a pioneering effort to develop a general approach to estimating the costs of climate change.  Subsequent efforts, such as the London IPCC group, have built directly on Nordhaus’s work in this area.  The EPA still uses a variant of this model.  The model was based on earlier work by Nordhaus himself in the 1970s, and he refined it over time in a series of books and articles, culminating in several books in the 1990s.  Here is his well-cited piece, with Mendelsohn and Shaw, on how climate change will affect global agriculture.

Nordhaus also was an early advocate of a carbon tax and furthermore note that his brother Bob wrote part of the Clean Air Act, the part that gave the government the right to regulate hitherto-unmentioned pollutants in the future.  The Obama administration, in its later attempts to regulate climate, cited this provision.

I would say that much of Nordhaus’s work has its impact through being “done,” rather than through being “read.”  Few economists have read through this model, which has computer programs and spreadsheets at its core.  But virtually all economists read about the results of such models and have a general sense of how they work.  The most common criticism of such models, by the way, is simply that their results are highly sensitive to the choice of discount rate.

In recent years, Nordhaus has shifted his emphasis to the risks from climate change, for instance in his book The Climate Casino: Risk, Uncertainty, and Economics for a Growing World.  Marty Weitzman offers a good review, as does Krugman....MORE

We've been posting on Professor Nordhaus for a decade. As noted a week ago:

"Schumpeterian Profits and the Alchemist Fallacy"

I've referred to the Alchemist Fallacy quite a few time over the years, most recently in the context of mining the moon or asteroids or somesuch but haven't highlighted the paper where I first saw the term.
It's by Yale's Professor Nordhaus, one of the heavyweights.
(if you glance through his c.v. you'll find at least three Nobel Laureates he's co-authored with, among other stuff)...

Also at Marginal Revolution:

Why Paul Romer won the Nobel Prize in economics