Analysis and News

2021 Sveriges Riksbank Prize in Economic Sciences

BY ARMCORE VPI's Analyst: Kezia Bridgewater

The Royal Swedish Academy of Sciences awarded the 2021 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to three U.S.-based academics: David Card at the University of California Berkeley, Joshua D. Angrist of the Massachusetts Institute of Technology and Guido W. Imbens at Stanford University. 

One-half has been awarded to David Card “for his empirical contributions to labour economics,” and the remainder is shared between Joshua D. Angrist and Guido W. Imbens “for their methodological contributions to the analysis of causal relationships.” The Noble Prize is valued at 10 million Swedish kronor; Card will receive 5 million SEK while Angrist and Guido will receive 2.5 million SEK each. This Prize has been awarded 53 times to 89 laureates between 1969 and 2021. 

The trio has shown that conclusions about cause and effect can be drawn from natural experiments, i.e. real-life situations. To mimic clinical trials, Card used situations in which chance events or policy changes result in groups of people being treated differently. However, unlike a clinical trial, the individuals may choose whether they want to participate in the intervention being offered, eliminating the “random” element. This makes it much more difficult to interpret the results of a natural experiment. In an innovative study from 1994, Joshua Angrist and Guido Imbens showed what conclusions about causation could be drawn from natural experiments in which people cannot be forced to participate in the programme being studied. This approach has spread to other fields and has revolutionised empirical research.

Card studied the effect of the Cuban influx into Miami on its labour market during the 1980s. He found that the incomes of people who were born in a country can benefit from new immigration, while people who immigrated at an earlier time risk being negatively affected.

Another instance of conclusions drawn from natural experiments is cited in a paper by the late Alan Krueger and Card that compared the effects of minimum-wage policies in fast-food restaurants in Pennsylvania and New Jersey. They surveyed restaurants in New Jersey before and after the introduction of a minimum wage in the state, an approach that was quite unusual at the time, Prof Card said. The results showed, among other things, that increasing the minimum wage does not necessarily lead to fewer jobs.

 “Card’s studies of core questions for society and Angrist and Imbens’ methodological contributions have shown that natural experiments are a rich source of knowledge. Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society,” says Peter Fredriksson, chair of the Economic Sciences Prize Committee.

The Laureates’ contributions have provided a coherent framework showing how the results of natural experiments should be interpreted, paving the way for the research community to answer central questions for society. 


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