The prize, officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was awarded to three economists, two based in the US and one in the UK.
Peter A. Diamond of the Massachusetts Institute of Technology (MIT), Dale T. Mortensen of Northwestern University, outside of Chicago, and Christopher A. Pissarides of the London School of Economics and Political Science, will equally share the 10 million kronor ($1.5 million).
Reached on the phone in the UK, Pissarides tried to express his feelings to the Swedish Academy and the press gathered to witness the announcement.
“It’s a mixture of surprise and happiness,” he said.
“You don’t believe it will ever happen until after you’ve been told it has happened.”
Pissarides and his two fellow Laureates received the award for having created a theoretical framework for “search markets” in which buyers and sellers have a hard time finding one another.
The most common example of a search market is the labour market, where job seekers and employers must take time finding the right fit before a transaction–in this case, the acceptance of a job offer–can be completed.
Diamond has analysed the foundations of search markets, while Mortensen and Pissarides expanded the theory and applied it to the labor market.
The models developed from the trio’s work in the understanding of how unemployment, job vacancies, and wages are affected by regulation and economic policy such as the level of unemployment benefits or rules governing hiring and firing.
One conclusion from the models is that more generous unemployment benefits give rise to higher unemployment and longer search times.
“What we should really be doing is make sure the unemployed do not stay unemployed for too long, to try to give them direct work experience,” Pissarides said.
Search market theories have also been applied to the housing market, another instance where it can take time for multiple buyers and sellers to find one another.
Diamond, a US citizen, received his PhD from MIT in 1963 and then spent three years at the University of California, Berkeley before returning to be a professor at MIT.
Pissarides, who holds both Cypriot and UK citizenship, gained his PhD from the London School of Economics (LSE) in 1973. After stints at the Central Bank of Cyprus and University of Southampton, he returned to LSE in 1976. Since 2006 he has served as the Norman Sosnow Professor of Economics.
Mortensen, also a US citizen, received his PhD from Carnegie Mellon University in 1967, although his teaching career at Northwestern University began two years earlier in 1965. He is currently the Ida C. Cook Professor of Economics at Northwestern University.
The Nobel economics prize is not is not one of the original prizes created by Alfred Nobel, but was established in 1968 on the 300th anniversary, of the Riksbank, which is responsible for paying out the prize money.
The prize is awarded every year to a person or persons in the field of economic sciences who have produced work of outstanding importance, and the Royal Swedish Academy of Sciences chooses recipients according to the same principles as for the original Nobel Prizes.