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:

• Ed Glaesar has a great primer
• Tyler Cowen compiles all the links and literature as always. Cowen writes a seperate post for each laureate – Diamond, Mortensen and Pissarides. Read Cowen’s personal observations as well
• Alex Tabarrok says it is a prize for unemployment
• Krugman says it is a nice day for economic theory
• WSJ Blog Work of Economics Nobel Winners Informs Current Labor Debate, Nobel Win Could Aid Peter Diamond’s Fed Confirmation Fight
• Mankiw has some trivia
• Steve Levitt of Freakonomics. He says given Diamond’s stature he wonders why is he interested to become Fed Board member? Even I would agree on that.
• NY Times article
• Jonathan Cohn says he is the same Diamond rejected for Fed nomination
• Gulzar says it is a prize so appropraite for today’s times