Landmark Studies in Economics

By Elise Mowbray

Are you curious about the research that’s been shaping our world in the last decade? The work of Nobel Laureates in Economics has transformed how we understand critical issues like labor markets, poverty, climate change, and financial stability. Their breakthroughs not only introduce us to new theories but offer practical tools to address global challenges. From advancements in women’s labor outcomes in 2023 to the integration of climate change in macroeconomic analysis in 2018, each discovery builds on years of innovation and opens new avenues for both academics and practitioners. Here’s a quick look at some of these transformative contributions.

Research in the Last Decade from Nobel Laureates

Economics sciences is one of the six categories recognized by the Nobel Foundation, recognizing remarkable contributions made by specific researchers, sometimes over the course of decades. The links below summarize this research, explaining key concepts for general audiences and providing links to more advanced information and researchers’ original publications.

·       2023 for advancing our understanding of women’s labour market outcomes

·       2022 for research on banks and financial crises

·       2021 for empirical contributions to labour economics and methodical contributions to the analysis of causal relationships

·       2020 for improvements to auction theory and inventions of new auction formats

·       2019 for an experimental approach to alleviating global poverty

·       2018 for integrating climate change into long-run macroeconomic analysis and integrating technological innovations into long-run macroeconomic analysis

·       2017 for contributions to behavioural economics

·       2016 for contributions to contract theory

·       2015 for analysis of consumption, poverty, and welfare

·       2014 for analysis of market power and regulation

For earlier winners, visit: https://www.nobelprize.org/prizes/lists/all-prizes-in-economic-sciences/.

Milestone Papers in Economics

The following papers, reflecting conventional economic theory established in the 1900s, were pulled from research featured in the collection Landmarks of Finance and Economics, with links included below where reports are open access.

·       Frank Ramsey, "A mathematical theory of saving,” Economic Journal, Dec 1928. Ramsey’s "optimal growth" model–which has since become known as the "Ramsey model"–is one of the earliest applications of the calculus of variations to economics.

·       Emile Grunberg and Franco Modigliani, “The predictability of social events," Journal of Political Economy, Dec 1954. "Rational expectations" is the economic theory describing how predictions of events influence behavior.

·       Franco Modigliani and Merton Miller, "Dividend policy, growth, and the valuation of shares," The Journal of Business, Oct 1961. Franco Modigliani, "The Modigliani-Miller propositions after thirty years," Journal of Economic Perspectives, 1989. The "Modigliani-Miller Theorem" demonstrates that a firm's market value is independent of its capital structure and dividend policy.

·       William Vickrey, "Counterspeculation, auctions, and competitive sealed tenders,” Journal of Finance, March 1961. Paul Milgrom and Robert Weber, "A theory of auctions and competitive bidding," Econometrica, Sept 1982. Vickrey's paper was the first to use game theory to explain the dynamics of auctions and derive auction equilibria. Milgrom and Weber's paper further advances auction theory by describing a "general symmetric model" of auctions that does not assume that the values of the bidders are symmetrical.

·       Vernon Smith. “An experimental study of competitive market behavior,” Journal of Political Economy, Apr 1962. This is a pioneering paper on controlled experimentation in economics.

·       Albert Ando and Franco Modigliani, “The ‘life-cycle’ hypothesis of saving: aggregate implications and tests,” American Economic Review, Mar 1963. The Life-cycle Theory of Saving and Consumption predicts that savings rates depend on the age of consumers and hence on the demographic structure of society.

·       George Stigler, “The economics of information,” Journal of Political Economy, June 1961, and “Information in the labor market,” Journal of Political Economy, Oct 1962. Challenging the theory of perfect competition, Stigler describes how market equilibrium should be characterized by a distribution of prices whose variance relates to the cost of searching for information.

·       Gary Becker, "Investment in human capital," Journal of Political Economy, Oct 1962. Becker provides a general theory for the household's allocation of time.

·       Eugene Fama, "The behavior of stock market prices," Journal of Business, Jan 1965. The Efficient-Market theory asserts it’s impossible to outperform the market by using information the market already knows, except through luck.

·       Eugene Fama, “The adjustment of stock prices to new information,” International Economic Review, Feb 1969. This is the first study of the impact of new information on stock prices, introducing event-time analysis.

·       Robert Merton, “Lifetime portfolio selection under uncertainty,” Review of Economics, Aug 1969. Merton formulated an investment strategy for deciding how much to consume, how much to invest, and how to allocate the investments between stocks and risk-free assets in order to maximize expected lifetime utility.

·       GA Akerlof, "The market for lemons," Quarterly Journal of Economics, Aug 1970. The most-cited paper on economic theory, this report details the asymmetry that occurs when the seller knows more about a product than the buyer.

·       Fischer Black and Myron Scholes, “The pricing of options and corporate liabilities,” Journal of Political Economy, 1973. Robert Merton, “Theory of rational option pricing,” Bell Journal of Economics and Management Science, 1973. Most techniques employed today are rooted in the option pricing model developed by Black, Scholes, and Merton.

·       Stephen Ross, “The arbitrage theory of capital asset pricing,” Journal of Economic Theory, Dec 1976. Richard Roll and Stephen Ross, "An empirical investigation of the arbitrage pricing theory," Journal of Finance, Dec 1980. The arbitrage pricing theory allows for an explanatory model of asset returns.

·       Daniel Kahneman and Amos Tversky, "Prospect theory," Econometrica, Mar 1979. This study addresses nonutility-maximizing decisions by noting (and determining the implications of) the fact that people are more sensitive to losses than gains.

·       Robert Engle and C Granger, "Co-integration and error correction," Econometrica, Mar 1987. Co-integration allows analysts to test for a statistically significant connection between apparently related time series such as a stock market index and the price of its associated futures contract.

·       Eugene Fama, "The cross-section of expected stock returns," Journal of Finance, June 1992, and "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Feb 1993. These papers detail the Fama-French three factor model of market behavior, explaining more than 90 percent of diversified portfolios returns.

·       Andrei Schleifer and Robert W. Vishny, “The limits of arbitrage,” The Journal of Finance, Mar 1997. Nobuhiro Kiyotaki and John Moore, "Credit cycles," Journal of Political Economy, Apr 1997. These papers warned of the types of market failure that contributed to the great recession of 2008.