Nobel Prize in Economics Awarded for Groundbreaking Research on Institutions and Prosperity

The Royal Swedish Academy of Sciences awarded the 2024 Nobel Prize in Economic Sciences, also known as the Sveriges Riksbank Prize, to Daron Acemoglu, Simon Johnson, and James A. Robinson for their work on the impact of institutions on a country’s economic prosperity. The laureates’ research highlights how societal institutions are central to economic development, emphasizing that promoting democracy and inclusive institutions can drive growth and reduce income disparities. According to the Academy, societies with weak rule of law and exploitative institutions fail to achieve progress and prosperity.

Jakob Svensson, Chair of the Prize Committee, noted that reducing income inequality between countries remains a significant global challenge, and the laureates’ research underscores the importance of strong institutions in addressing this issue. By examining historical and contemporary political and economic systems, especially those established by European colonizers, Acemoglu, Johnson, and Robinson have developed theories explaining why institutional differences persist and how they can evolve.

The trio’s findings provide fresh evidence that disparities in economic prosperity are largely due to institutional differences rather than geographic or cultural factors. For instance, they use the divided city of Nogales, located on the US-Mexico border, as a case study. Despite similar geography, history, and culture, the US side of Nogales enjoys significantly better living conditions than its Mexican counterpart, illustrating how institutional frameworks shape outcomes. The laureates argue that this example is part of a broader historical pattern rooted in colonialism.

Their research also explores why elites in societies often resist implementing inclusive institutions despite the long-term economic benefits. The model they developed explains the dynamics of power allocation, elite resistance, and the conditions under which power shifts occur. It highlights three main components: conflict over resource distribution, the potential for mass mobilization against the elite, and the commitment problem, where elites might be forced to cede power to maintain stability.

Acemoglu and Johnson are affiliated with the Massachusetts Institute of Technology, while Robinson is at the University of Chicago. The Nobel Economics Prize has been awarded 96 times since its inception in 1969, with last year's prize going to Claudia Goldin. The award, funded by the Riksbank in honor of its 300th anniversary, carries the same value as the other Nobel Prizes. This announcement concludes this year's Nobel Prize series, which also recognized achievements in medicine, physics, chemistry, literature, and peace.