Columbia University Professor Joseph Stiglitz was awarded the Nobel Prize in Economics on Wednesday (10-10-01) by the Royal Swedish Academy of Sciences. Stiglitz, former chief economist at the World Bank, has appointments at Columbia's School of International and Public Affairs (SIPA), the Economics Department of the Graduate School of Arts and Sciences and the Graduate School of Business.
Officially named the Bank of Sweden Prize in Economic Sciences, Stiglitz won the award with George Akerlof of the University of California, Berkeley and A. Michael Spence of Stanford University. The Academy selected the trio for "their analyses of markets with asymmetric information."
"Market economies are characterized by a high degree of imperfections," Stiglitz said during a press conference held at Columbia. "Older models assumed perfect information, but even small degrees of information imperfections can have large economic consequences. Our models took into account asymmetries of information, which is another way of saying 'Some people know more than others.' "
Columbia has a distinguished tradition in economics, with its faculty winning three Nobel Prizes in economics in the past six years. The late William S. Vickrey was awarded the Nobel Prize in economics in 1996 and Robert Mundell received the prize three years later. Past faculty members have included the eminent economists Edwin R.A. Seligman, Robert M. Haig, and Carl S. Shoup. In addition to Mundell, the current department includes noted economists Edmund Phelps, Ronald Findlay and Jagdish Bhagwati.
In the past six years, five Columbia faculty members have won Nobel prizes. Besides Stiglitz, Vickrey and Mundell, Horst Stormer won for Physics in 1998 and Eric Kandel won for Medicine in 2000. Overall, 63 individuals who have taught or studied at Columbia University have won the Nobel Prize since it was first awarded in 1901, including 21 current or former faculty members who have won the prize for work done while at Columbia.
In explaining how he was informed of his prize, Stiglitz said he was preparing his morning coffee when a phone call from the Nobel selection committee came.
"I quickly switched from coffee to champagne," said Stiglitz, who was greeted with a standing ovation from his students prior to the start of his Wednesday afternoon class.
The Academy noted that Stiglitz "clarified the opposite type of market adjustment, where poorly informed agents extract information from the better informed, such as the screening performed by insurance companies dividing customers into risk classes by offering a menu of contracts where higher deductibles can be exchanged for significantly lower premiums. In a number of contributions about different markets, Stiglitz has shown that asymmetric information can provide the key to understanding many observed market phenomena, including unemployment and credit rationing."
Stiglitz, who thanked the National Science Foundation for supporting much of his research and the research universities where he has conducted his scholarship, noted that the September terrorist attacks tempered the joy he felt about winning the prize.
"The receipt of a prize like this is tinged by the fact many innocent people have died in recent days," Stiglitz said.
He added that "economics can make a difference" in improving people's lives by "focusing on the difference between the haves and have-nots."
"Our global system is characterized by a lot of inequities," Stiglitz said. "It seems increasingly important to try to redress these inequities."
Stiglitz has made seminal and fundamental contributions to every subfield of economic theory – microeconomics, macroeconomics, industrial organization, international economics, labor economics, financial economics and development economics. He has published more than 300 papers, as well as a dozen books, in a 35-year career.
Stiglitz commented on the tax cut advocated by the Bush Administration and passed by Congress earlier this year, saying that it was not intended to boost the economy, but, rather, to limit the federal government's discretionary spending. He added this is why the tax cut, which included rebates distributed in recent weeks, has failed to stimulate the economy.
Instead, Stiglitz advocated an investment tax credit, arguing "it will be necessary for the long-term run of the economy."
Stiglitz also promoted the idea of government investment in public accommodations, such as schools and airport infrastructure, as well as research.
"The net rates of return on research is very high," he said.
His career began at Yale, where he became a tenured professor at the age of 27. Stiglitz has also been a faculty member at Princeton, Oxford and Stanford universities. At the age of 29, he became a Fellow of the Econometric Society and is a member of the National Academy of Science. Stiglitz is also the recipient of the prestigious John Bates Clark Medal, awarded every two years to the American economist under the age of 40 who has made the most significant contributions to the subject.
Stiglitz has also become influential in the making and evaluation of economic policy in the last decade. He served on President Clinton's Council of Economic Advisers – first as a member and later as chairman with cabinet rank. He was later named chief economist of the World Bank. Since January 2000, Stiglitz has been a visiting professor at Columbia's Graduate School of Business and Department of Economics in the Graduate School of Arts and Sciences. He plans to locate his new Initiative for Policy Dialogue at SIPA. The Initiative for Policy Dialogue, which is funded with substantial foundation support, aims to provide an alternative to the International Monetary Fund and World Bank for countries in need of sound economic policy advice.