LONDON (dpa-AFX) - Three economists have won this year's Nobel prize in economics 'for studies of how institutions are formed and affect prosperity'.
Announcing the Sveriges Riksbank Prize in Economic Sciences Monday, the Royal Swedish Academy of Sciences said this year's laureates - Daron Acemoglu, Simon Johnson and James Robinson - have demonstrated the importance of societal institutions for a country's prosperity.
The Academy said the laureates have shown that one explanation for differences in countries' prosperity is the societal institutions that were introduced during colonization. Inclusive institutions were often introduced in countries that were poor when they were colonized, over time resulting in a generally prosperous population. This is an important reason for why former colonies that were once rich are now poor, and vice versa.
Some countries become trapped in a situation with extractive institutions and low economic growth. The introduction of inclusive institutions would create long-term benefits for everyone, but extractive institutions provide short-term gains for the people in power. As long as the political system guarantees they will remain in control, no one will trust their promises of future economic reforms. According to the laureates, this is why no improvement occurs.
However, this inability to make credible promises of positive change can also explain why democratization sometimes occurs. When there is a threat of revolution, the people in power face a dilemma. They would prefer to remain in power and try to placate the masses by promising economic reforms, but the population are unlikely to believe that they will not return to the old system as soon as the situation settles down. In the end, the only option may be to transfer power and establish democracy.
'Reducing the vast differences in income between countries is one of our time's greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this,' says Jakob Svensson, Chair of the Committee for the Prize in Economic Sciences.
Turkish American economist of Armenian descent, Daron Acemoglu is a Professor at Massachusetts Institute of Technology, Cambridge.
British American economist Simon H. Johnson also is professor at Massachusetts Institute of Technology, Cambridge.
British economist and political scientist James A. Robinson is a professor at University of Chicago, Illinois.
The prize amount of 11 million Swedish kronor, or $1.05 million, will be shared equally between the laureates.
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