While Nordhaus was cited for his work on environmental and climatic change, Romer's work focused on the economic impact of technological changes and the role of ideas in fostering economic growth.
By using a tax rather than government edicts to slash emissions, the policy encourages companies to find innovative ways to reduce pollution - and their tax burden. The time for baby-step carbon taxes should probably be over. The Nobel Prize in Chemistry went to Frances H. Arnold, George P. Smith and Gregory P. Winter for tapping the power of evolutionary biology to solve chemical problems.
"He came to Stern in 2010 where he set up the Urbanization Project, in which they, amongst other things, studied the way cities can be harnessed to advance growth and progress and how to shape urbanization itself to better the life of humankind", Sundaram said.
"This is, for sure, a Nobel Prize about the big questions", University of MI economist Justin Wolfers said on Twitter. There are other limitations to DICE, which Nordhaus admits himself. But to some longtime followers of the Nobel committee, the decision to collectively honor their research seemed a logical one. "Romer has been writing about the means at your disposal" to attack such a technological challenge. Climate change and its effect on everyone's well-being, he pointed out, is not a part of national accounts, while profits and GDP are.
In scholarly work done more than three decades ago, economist Paul Romer proposed that societies look beyond the material drivers of long-term growth, such as oil, ports, or labor. The social cost of carbon should be spread fairly.
Many economists have since endorsed the concept of taxing carbon and using this financial lever to influence societal behaviour. But adopting the regulatory frameworks on a global scale has proven problematic, and the world's political leaders are failing to meet it, the head of the United Nations said last month.
In July, the GOP-controlled House voted for a resolution rejecting carbon taxes as detrimental to the USA economy. They were honoured for integrating climate change and technological innovation into macroeconomic analysis.
Unlike Romer and Nordhaus, the panel of scientists who produced the United Nations report expressed little hope that the world will rise to the challenge. Romer is also familiar to Marketplace listeners: He figured out a way to factor in technology in economic growth calculations.
Governments have the power to promote or discourage innovation through policy. If we all produce more ideas, we all benefit from these new ideas, not just the people who produce them.
The scientists who prepared the UN-backed report "are trying to convince us all that there is an imminent crisis when in fact there is a potential long-term problem, " said Myron Ebell of the Competitive Enterprise Institute, who worked on the Trump transition. Apart from this, he obtained an MA and a PhD in Economics from the University of Chicago in 1978 and 1983 respectively.
The mainstream economic analysis of the 1970s, when Romer was a graduate student and Nordhaus was an assistant professor, was mostly dedicated to what's known as general equilibrium analysis: If consumers were to maximize their utilities, and producers were to maximize their profits, what would happen?
The Nobel Peace Prize was awarded Friday to Nadia Murad, a Yazidi human rights activist and survivor of sexual slavery by Islamic State in Iraq, and Denis Mukwege, a gynecologist treating victims of sexual violence in the Democratic Republic of Congo.
From 1977 to 1979, Nordhaus was a member of the President's Council of Economic Advisers; from 1986 to 1988, he was provost of Yale University.