Chronicle of Higher Education - web daily - October 11, 2000
Nobel Prize in Economics Goes to Berkeley and Chicago Scholars By D.W. MILLER
This year's Nobel Prize in economics will be awarded to two American economists, James J. Heckman, of the University of Chicago, and Daniel L. McFadden, of the University of California at Berkeley. The pair were cited for their work in separate areas of microeconometrics, for which they have developed theories and methods widely used in the empirical analysis of individual and household behavior.
The economics prize, which is formally known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, was not one of the five awards set up by the will of the Swedish magnate, but was established in his memory in 1968 by the Bank of Sweden. The two laureates will split a cash award of nine million Swedish kroner, or about $908,000. They will receive their awards at a ceremony in Sweden in December.
Microeconometrics is a methodology for studying economic information about large groups of individuals, households, or companies. Mr. Heckman and Mr. McFadden have resolved fundamental problems that arise in the statistical analysis of such "microdata." In honoring the economists, the Royal Swedish Academy of Sciences said "the methods they have developed have solid foundations in economic theory, but have evolved in close interplay with applied research on important social problems."
For example, the academy said, what determines whether an individual decides to work and, if so, for how many hours? How do economic incentives affect choices of education, occupation, and place of residence? What are the effects of different educational programs on income and employment? "They are now standard tools," the academy said, "not only among economists but also among other social scientists."
Mr. Heckman, who has been a professor of economics at Chicago since 1973, was cited by the Swedish academy for his work in so-called selective samples. "Data on wages, for instance, cannot be sampled randomly if only individuals with certain characteristics -- unobservable to the researcher -- choose to work or engage in education," the academy said. "If such selection is not taken into account, statistical estimation of economic relationships yields biased results. Heckman has developed statistical methods of handling selective samples in an appropriate way.
"He has also proposed tools for solving closely related problems with individual differences unobserved by the researcher," the academy added. "Such problems are common, for example when evaluating social programs or estimating how the duration of unemployment affects chances of getting a job. Heckman is also a leader of applied research in these areas."
Mr. McFadden, a professor at Berkeley from 1968 to 1979 and since 1990, was cited by the academy for his work in discrete choice. "Data regarding individuals' occupation or place of residence reflect choices they have made among a limited number of alternatives," the academy said by way of example. "Prior to McFadden's contributions, empirical studies of such choices lacked a foundation in economic theory. Evolving from a new theory of discrete choice, the statistical methods developed by McFadden have transformed empirical research."
"His methods are readily applicable," the academy said. "For example, they prevail in models of transports and are used to evaluate changes in communication systems. Examples of McFadden's extensive applications of his own methods include the design of the San Francisco BART [Bay Area Rapid Transit] system, as well as investments in phone service and housing for the elderly."