The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2015

• Date: 01 July 2016
• Published date: 01 July 2016
• DOI: http://doi.org/10.1111/sjoe.12187

Scand. J. of Economics 118(3), 373–374, 2016

DOI: 10.1111/sjoe.12187

The Sveriges Riksbank Prize in Economic

Sciences in Memory of Alfred Nobel, 2015

Press release from the Royal Swedish Academy of Sciences

The Royal Swedish Academy of Sciences has decided to award the Sveriges

Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for

2015 to

Angus Deaton, Princeton University, NJ, USA

“for his analysis of consumption, poverty, and welfare”

Consumption, Great and Small

To design economic policy that promotes welfare and reduces poverty,

we must first understand individual consumption choices. More than any-

one else, Angus Deaton has enhanced this understanding. By linking de-

tailed individual choices and aggregate outcomes, his research has helped

transform the fields of microeconomics, macroeconomics, and development

economics.

The work for which Deaton is now being honored revolves around three

central questions.

How do consumers distribute their spending among different goods? An-

swering this question is not only necessary for explaining and forecasting

actual consumption patterns, but it is also crucial in evaluating how policy

reforms, such as changes in consumption taxes, affect the welfare of differ-

ent groups. In his early work around 1980, Deaton developed the Almost

Ideal Demand System – a flexible, yet simple, way of estimating how the

demand for each good depends on the prices of all goods and on individual

incomes. His approach and its later modifications are now standard tools,

both in academia and in practical policy evaluation.

How much of society’s income is spent, and how much is saved? To

explain capital formation and the magnitudes of business cycles, it is nec-

essary to understand the interplay between income and consumption over

time. In a few papers around 1990, Deaton showed that the prevailing con-

sumption theory could not explain the actual relationships if the starting

point was aggregate income and consumption. Instead, one should sum up

how individuals adapt their own consumption to their individual income,

which fluctuates in a very different way to aggregate income. This research

CThe editors of The Scandinavian Journal of Economics 2016.