Edward C. Prescott Awarded 2004 Nobel Prize in Economic Sciences

Edward C. Prescott, the W. P. Carey Chair of Economics in the W. P. Carey School of Business and a senior monetary advisor at the Minneapolis Federal Reserve Bank, has been awarded the 2004 Nobel Prize in economic sciences, the first-ever Nobel Prize received by an Arizona State University scholar. Prescott was lauded for a lifetime of original thinking that has addressed some of the most important long-standing questions in macroeconomics. He shares the prize with Finn Kydland of Carnegie Mellon University and the University of California, Santa Barbara.

In its announcement, the Nobel Committee of the Royal Swedish Academy of Sciences, Stockholm, lauded Prescott and Kydland for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles". Prescott received notification at his Arizona home at 4 a.m. local time. The prize, including check for 10 million Swedish kronor (approximately $1.36 million) to be shared by the two, a gold medal and a diploma, is presented on Dec. 10, the anniversary of Nobel's death in 1896.

“Edward Prescott is most deserving of this highly prestigious honor,” said ASU President Michael M. Crow. “He is a man of great intellect, drive and commitment, who always puts others – particularly students – first. We are immensely proud to have Ed at ASU and we hope this is the beginning of many Nobel Prize winners coming out of this great institution.”

Prescott, who is part of the W. P. Carey School’s department of economics, is known for his seminal work in policy analysis, business cycles, economic development, general equilibrium theory, and finance. His examination of time inconsistency in the context of government policy making has helped shape the debate over the effectiveness of rules versus discretion in the conduct of economic policy. His work on business cycles has recast the way economists think about economic fluctuations, arguing that they represent the optimal response of the economy to various shocks.

His 2000 book “Barriers to Riches,” argues that barriers to technology adoption are the dominant cause of the large differences in standards of living across countries. The book has been translated into Italian, French and Chinese.

A recent paper shows that the reason Americans work longer hours than Europeans is the disincentive effect associated with higher taxes in Europe. Moreover, these disincentives result in a large loss in well being for the average European. Another paper develops a methodology for determining whether the stock market is over- or under-valued.

Edward C. Prescott
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“This is the golden age of economics,” Prescott said in a recent interview. “Economic theory has become quantitative – a hard science. There have been a lot of questions that we could only speculate about, but now we have methodology to unravel them – questions like why openness is so important to a country’s economy.”

“Many in the world do not understand that economics underlies the rise and fall of countries, businesses, governments and standards of living,” said Robert Mittelstaedt, dean of the W. P. Carey School. “Ed Prescott's research and teaching has enlightened students, business people, government officials and other academics. In the process he has opened our eyes to the realization that economic results are rarely random, but the result of policies and actions that need considered judgment. While his research is widely read, he also has a huge impact on individual students, helping them learn from the master on a personal basis.”

Prescott, who thinks long and carefully before answering any question, enjoys dialogues with students about economic questions. Meetings in his office always involve a student, or Prescott himself, at the blackboard, working out a problem with chalk in hand. Although Prescott connects the adoption of technology to a country’s ability to prosper, he is unwilling to accept the advanced technology of the whiteboard. A blackboard made of slate has always hung on his office wall.

“I’ve learned a lot from students – including undergraduate students. They ask good questions, and some of those questions have resulted in good papers,” Prescott said. “It’s important for society that students can carry out evaluation of policy.”

Despite being one of the most prolific producers of Ph.D. students in the economics profession, Prescott has always generously offered his time, energy and inspiration to each of his students. When asked about how his former students feel about him, Richard Rogerson offered the following: "Actions speak very loudly, and when Ed was awarded the Erwin Plein Nemmers Prize in 2002 the room was filled with his former students who flew in from all across the country to be there to celebrate his achievement."

Prescott earned a bachelor’s degree in mathematics from Swarthmore College, a master of science in operations research from Case-Western Reserve University and a Ph.D. in economics from Carnegie-Mellon University.

Until his arrival at ASU in the fall of 2003, Prescott had been on the faculty of the University of Minnesota for more than 20 years, and held the titles of Regents Professor and McKnight Presidential Endowed Professor. In 2003 Prescott received the Erwin Plein Nemmers Prize in Economics, and in 2002 he received an academic award from the University of Rome. Also in 2002, he presented the Richard T. Ely Lecture, entitled "Prosperity and Depression," at the American Economic Association meetings. He is currently a fellow of the American Academy of Arts and Science and the Econometric Society. He has held a number of visiting professorships at universities throughout the United States and Europe.