Five American academics were named as leading contenders for the 2014 Nobel Prize in Economic Sciences by Thomson Reuters ScienceWatch.
- Philippe M. Aghion, the Robert C. Waggoner professor of economics, Harvard University, Cambridge, Mass.;
- Peter W. Howitt, the Lyn Crost professor emeritus of social sciences and professor emeritus of economics, Brown University, Providence, R.I.;
- William J. Baumol, professor of economics and the Harold Price professor of entrepreneurship, New York University;
- Israel M. Kirzner, professor emeritus of economics, New York University; and
- Mark S. Granovetter, the Joan Butler Ford professor and chair of sociology and professor in the School of Humanities and Sciences, Stanford University, Palo Alto, Calif.
The prize, formally called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is awarded by the Royal Swedish Academy of Sciences. The winner is scheduled to be announced Monday.
Criteria for naming contenders include the frequency of citations in research papers to an individual’s work.
ScienceWatch is an open Web-based resource for science metrics and research performance analysis.
ScienceWatch promoted Messrs. Aghion and Howitt for advancing “the theory of ‘creative destruction,’ as a drive of economic growth; Messrs Baumol and Kirzner for advancement of the study of entrepreneurism “as a dynamic force in the economy”; and Mr. Granovetter for his “pioneering research in economic sociology.”
Bruce I. Jacobs, principal, Jacobs Levy Equity Management Inc., Florham Park, N.J., commented in an e-mailed response to questions on the relevance of the five contenders to investment management.
Messrs. Aghion and Howitt “are perhaps the foremost scholars of economic growth, and in particular, Joseph Schumpeter’s theory of creative destruction.”
Mr. Jacobs said Messrs. Aghion and Howitt in their research “have developed a multifaceted model of economic growth that takes into account competition and market structure, firm dynamics, the relationship between growth and development, and the impact of technology. They theorize that innovation had replaced capital as the main driver of economic growth, but innovation can also make obsolete existing products and markets.”
Work by Messrs. Aghion and Howitt “has potentially a large impact on capital markets and investing, as it seeks to understand how economies grow, and the growth that may be expected. Inasmuch as equity returns are ultimately dependent on underlying economic growth, a better understanding of that growth can aid in forecasting and investment planning,” Mr. Jacobs said. “Their research also has implications for ‘overinvestment,’ some of the results of which we saw during the housing market bubble, which was abetted by financial innovations such as structured finance products.”
Mr. Jacobs said research by Messrs Baumol and Kirzner “emphasizes entrepreneurship as a driving force of economic growth.
Their work “is obviously ultimately important for capital markets and a stage at which venture capital investors get involved,” Mr. Jacobs said.
He said Mr. Granovetter’s “research crosses over into economics through his theory that social relationships and institutions can improve understanding of economic transactions beyond the idealized theory that economic actors always make rational decisions based on perfect information. Social networks have become more widely used in economic modeling, with increasing recognition of the interrelationships between economic parties.”
Mr. Jacobs added, “We saw some of the effects of interrelationships on economics during the housing bubble and ensuing financial disruption.” Mr. Granovetter “has also done some work on modeling fads, and this seems similar to the information cascades that have been used to describe the October 1987 (stock market) crash,” Mr. Jacobs said. “One could see social networks as an expansion of behavioral finance, looking at groups rather than individual psychology” to discern investment management actions.