Posted by PrestoPundit on 10/13/2008

the work for which he was awarded the Nobel Prize, argues economist Barkley Rosser:

I .. think Tyler is right that it is probably the combination of trade and location theory that is the key here, and Krugman certainly has been front and center on this. He is clearly the person who applied the Dixit-Stiglitz model to both trade and location theory, and it would appear that this is really the bottom line on what he got it for. It is indeed correct that the Swedes (and many other Europeans) are much concerned with location theory and economic geography. Krugman has defended regional economics, even as “regional science” has faded in the US. But that last trade prize recipient, Ohlin’s most famous book was _International and Interregional Trade_. Indeed, the principles behind them are deeply linked.

Given all this why then did I go out on a limb to say it would not be Krugman? Well, I thought that since what Krugman was most famous for was applying the Dixit-Stiglitz model to both trade and geography, and Stiglitz already got his for asymmetric information, that paper was clearly deserving, and Dixit should get it. Also, and Krugman has recognized this, others beat him to the punch in applying Dixit-Stiglitz in applying it to trade, with some of the other “losers” mentioned by others being here among those. However, Krugman clearly applied it more thoroughly and widely and vigorously.

In a sense there is a bit of a comparison with the prize for Lucas here. He got it for applying rational expectations to macroeconomics. In the meantime, the man who invented rational expectations, John Muth, has never received the prize (although some would claim it was Jacob Marshak who did so).

Regarding the economic geography part of this, Krugman clearly was almost the first to apply Dixit-Stiglitz to the matter (although he was preceded in this by Masahisa Fujita of Japan, whose work he has cited and with whom he later coauthored works), and then took it very far as the remarks by Venables indicate (Venables has coauthored an excellent book with Krugman and Fujita also).

But, I must now confess that I wrote a very critical review of the book on this that Tyler praises, _Development, Geography, and Economic Theory_ (1996 in JEBO). I had two complaints. One was that the Dixit-Stiglitz heterogeneous goods model from monopolistic competition is not in fact the main source of agglomeration economies in actual regional economies, although Krugman defended his use of this model in that book by arguing that it was useful for providing a rigorous mathematical model, which it does. He compared himself to the person who provided a map to “darkest Africa” when those who had written of it earlier could only vaguely speak of it in words.

My other criticism, connected to the first, was that there had been a long literature in the 1980s that did mathematically model agglomeration economies (not using Dixit-Stiglitz) that he never cited, in contrast with his citing of the use of Dixit-Stiglitz by others before him in trade theory and by Fujita in urban and regional economics. However, most of this literature was by physicists publishing in regional science or geography journals, such as Peter Allen, who was a student of Ilya Prigogine in Brussels, and Wolfgang Weidlich, who is an associate of Hermann Haken at the Institute for Theoretical Physics in Stuttgart. Krugman has never cited these people, and to be very blunt, I publicly called him out on this when he made a presentation at a session on complexity at the AEA meetings in the early 1990s (he was chairing the session and replied “we can discuss citations later, next question” [end of discussion]). Having made this rather snarky remark, I must admit a hard bottom line: it is very possible that Krugman never actually saw or read any of this literature, and certainly none of these people are as deserving of this prize as he is, due to his broader accomplishments (and if he did read it, he may have rejected their approaches as too “ad hoc,” even if mathematical). However, at the time I thought it highly likely he was aware of it, which is what motivated the much more critical remarks I made in my book review, which I shall not repeat here, inappropriate as they would be on this day.

Because, in the end, I would say that this is indeed like the award to Lucas. Paul Krugman may not have been the ultimate originator of the ideas for which he is being cited.

UPDATE:  Peter Boettke — “a sad day for economics.”  Be sure to read the comments.

Read also this.


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