Nobel Prize Economics 2010 goes to Peter Diamond, Dale Mortensen and Christopher Pissarides

The list is out. The  trio gets for their for their analysis of markets with search frictions.

Why are so many people unemployed at the same time that there are a large number of job openings? How can economic policy affect unemployment? This year’s Laureates have developed a theory which can be used to answer these questions. This theory is also applicable to markets other than the labor market.

On many markets, buyers and sellers do not always make contact with one another immediately. This concerns, for example, employers who are looking for employees and workers who are trying to find jobs. Since the search process requires time and resources, it creates frictions in the market. On such search markets, the demands of some buyers will not be met, while some sellers cannot sell as much as they would wish. Simultaneously, there are both job vacancies and unemployment on the labor market.

This year’s three Laureates have formulated a theoretical framework for search markets. Peter Diamond has analyzed the foundations of search markets. Dale Mortensen and Christopher Pissarides have expanded the theory and have applied it to the labor market. The Laureates’ models help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy. This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.

Search theory has been applied to many other areas in addition to the labor market. This includes, in particular, the housing market. The number of homes for sale varies over time, as does the time it takes for a house to find a buyer and the parties to agree on the price. Search theory has also been used to study questions related to monetary theory, public economics, financial economics, regional economics, and family economics.

Here are the links from the website:

  • Summary
  • Prize Announcement
  • Press Release
  • Popular Information
  • Advanced Information
  • Lots of comments and insights on the web/blogs:

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    9 Responses to “Nobel Prize Economics 2010 goes to Peter Diamond, Dale Mortensen and Christopher Pissarides”

    1. Jake Lafferty Says:

      I thinks he is proper to wins the nobel, Diamond has contributed plenty to the theory of optimal taxation, in particular when linear commodity taxes are optimal and how to use the tax system for redistribution

    2. Nobel Prize for the times Says:

      [...] Related ArticlesNobel Prize Economics 2010 goes to Peter Diamond, Dale Mortensen and Christopher PissaridesThe list … [...]

    3. Yemi Badejo Says:

      This is a wonderful analytical tool at combating the ever increasing disequilibrium in the Labor market.
      The simple fact of this theorem is represented in the following statement;
      ‘On many markets, buyers and sellers do not always make contact with one another immediately. This concerns, for example, employers who are looking for employees and workers who are trying to find jobs. Since the search process requires time and resources, it creates ‘search frictions’ in the market. On such search markets, the demands of some buyers will not be met, while some sellers cannot sell as much as they would wish. Simultaneously, there are both job vacancies and unemployment on the labor market.’
      However, my concerns bothers on its applicability in the developing countries where local production/employment has always been below installed capacities due to the pervading tough business environment, lack of social capitals by central governments due to mismanagement of national treasury, very high population figures, instability and other social ills.
      In essence, there is little or no job vacancies/availability in this economies.However, the level of unemployment is at all time high.
      So the disequilibrium in these economies/markets could not be attributed to the issue of the ‘search friction’ as postulated by the Nobel laureates but to the obvious non availability of job vacancies.
      So in these markets, while there are so many unemployed people, there are a no large number of job openings and as such there is no ‘search friction’
      In all, the theory is a very useful at analyzing and evaluating market conditions and would help policy makers in fashioning out robust macroeconomics policies towards to full employment.

    4. Bella@Internet Marketing Says:

      These guys deserve the prize. Good job!

    5. Entering the final stretch! | What's New at Next Acropolis Says:

      [...] It is not an accident that the same year we go live, the Nobel Prize in Economics is awarded to Christopher Pissarides</strong> of the LSE. Pissarides’ prize-winning work deals with the economics of search in [...]

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