Former Harvard Dean Wins Nobel Prize
Spence will share the prize, worth $943,000, with George A. Akerlof of the University of California at Berkeley and Joseph A. Stiglitz of Columbia University.
“It is an incredible honor to be recognized for something that people perceive as moving the ball down the field in one’s academic discipline,” Spence said in a Stanford press release.
All three men won for research based on information control, and the concept of “asymmetric information,” which explores what happens to markets when there is one party that knows something that the other does not.
Each winner began his research as a graduate student in Cambridge, with Spence at Harvard and Akerlof and Stiglitz at MIT.
Spence focused his research on “signaling,” the concept that there are ways for people and businesses to reveal their abilities indirectly through their own choices. His research suggests that such signals can be used to clear up the discrepancies of information that exist in the market.
“Although an insurance company doesn’t necessarily know who the high risk drivers are, the drivers can “signal” themselves out by choosing a high cost policy with a lower deductible over a policy say with a higher deductible,” said Professor of Economics N. Gregory Mankiw, a colleague of Spence’s while he was at Harvard.
Spence continued his research while he taught economics at the Kennedy School from 1970 until 1984. He then took a hiatus from his research and became dean of FAS. Six years later he left Harvard to become the dean of Stanford Business School.
Spence currently works for Oak Hill Venture partners, a company that invests in start-up companies interested in information technology.
“I am hoping to get back to economics research soon and am particularly interested in the Internet and the major changes it has brought about in the area of information technology,” Spence said in the press release.
Mankiw said that the work of Spence and the other two winners has already had a tremendous impact on the way economists think about markets.
“These men not only helped change our view on how markets work but also helped to tremendously increase the efficiency of markets,” Mankiw said.