Economists receive 2024 Nobel for work on institutions and economic prosperity

Economists have long been fascinated by questions of what institutions, from government laws to societal customs, are most conducive to prosperity. However, to many, it was unclear how the boom in empirical data-driven research enabled by computing technology would address these questions. Ideas about history, individual freedom, and colonial legacy—of great importance when studying institutions—can be hard to quantify and analyze with an economist’s modern toolkit.

Daron Acemoglu, Simon Johnson, and James A. Robinson received the 2024 Nobel Memorial Prize in Economic Sciences for finding ways to bridge this gap. In making the award on Monday, October 14, 2024, the Royal Swedish Academy of Sciences explained that “Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better. The laureates’ research helps us understand why.”

The three frequent coauthors provided empirical results demonstrating the crucial roles of institutions, such as protecting property rights and equality under the law, in underpinning a prosperous economy. In one prominent paper, “The Colonial Origins of Comparative Development: An Empirical Investigation,” they observed that some nations had different colonization practices than others. Former colonies that once faced “extractive” practices, those that only sought to extract resources for the benefit of the colonizer, often failed to develop the institutions necessary to produce a pro-growth environment. 

In a subsequent paper, the three authors found more evidence of the link between development and colonial legacy in what first may seem like a puzzle. All else being equal, European nations that were more prosperous in 1500 were less likely to be prosperous in 1900. The authors argue that colonizing countries with more prosperous economies in 1500 continued subjecting their colonies to extractive institutions, while laggards in 1500, like England, had more incentive to change and adopted a more liberal set of institutions.

These results provide evidence that institutions like the rule of law, property rights, and limited government are the best ways to improve the lives of ordinary people. Extractive regimes exist for the benefit of the elite, who already have an entrenched position in the economy. More liberal regimes, with strong rule of law and property rights, give ordinary people the incentive to innovate and produce goods and services that create wealth, not merely transfer wealth from elite to elite.

Predictions, debates, and post-prize reactions have become a beloved Nobel-season ritual for economists. Acemoglu, Johnson, and Robinson are well-known in the world of economics and often beyond. Many considered their winning the prize only a matter of time.

Free market-oriented economists’ reactions to recent winners have varied. Many who are critical of the Federal Reserve and mainstream policy toward money and banking emphasized their differences with the 2022 winners, Ben Bernanke, Douglas Diamond, and Philip Dybvig. Claudia Goldin, the 2023 winner who has spent a career analyzing women’s role in the workforce, was met with wide celebration and acclaim.

Reactions from free-market economists to this year’s prize have been more mixed. In The Wall Street Journal, David R. Henderson of the Hoover Institution writes, “It’s good to see a Nobel Prize awarded to economists who understand the importance of private property and the rule of law.”

Brian Albrecht, chief economist at the free market International Center for Law and Economics, emphasized the 2024 Nobelists’ importance in modern institutional research, writing:

“Despite the debates and critiques surrounding AJR’s work, their contributions to the field of economics are undeniably significant. They pioneered new approaches to studying the long-term impacts of institutions on economic development, bringing sophisticated empirical methods and game theoretic models to bear on fundamental questions of political economy.”

However, while Acemoglu, Johnson, and Robinson have emphasized free-market principles, they often align more with a technocratic progressive approach. They are equally, if not more, concerned with active state intervention. Most recently, Acemoglu and Johnson’s 2023 book on artificial intelligence, “Power and Progress,” gave many market-oriented economists considerable pause.

Acemoglu, Johnson, and Robinson, more than anyone else, have brought the modern economist’s toolkit to bear on the long tradition of political economy. While many disagree with some of their results and conclusions, their professional success, capped with the Nobel prize, has done much to fuel the debate over institutions and economic prosperity in recent decades.

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