Sonnenschein shares international prize for work on economic theory
Hugo Sonnenschein, the Adam Smith Distinguished Service Professor in Economics, has received an important international prize in recognition of his contributions to economic theory.
He and his former student Andreu Mas-Colell, now Secretary General of the European Union Research Council, are sharing the BBVA Foundation Frontiers of Knowledge Award in Economics, Finance and Management, given in Spain. They were recognized for "extending the reach and applicability of general equilibrium analysis and for establishing the modern theory of aggregate demand."
They will share a prize of 400,000 euros, about $270,000 each. The award is being given for the second time.
Their work has helped achieve better models for the overall behavior of the economy, and particularly to interpret and empirically measure consumer behavior, according to the award citation.
The close collaboration between Sonnenschein and Mas-Colell, Professor of Economics at Pompeu Fabra University in Barcelona, has enabled economists to "address a much wider range of practical problems," and also has "changed the way in which economics is taught all over the world," said a committee that awarded the prize.
The committee said that these contributions - the perfecting of general equilibrium theory and authorship of the modern theory of aggregate demand - explain economic phenomena that are counter-intuitive, like the fact that a fall in prices does not always trigger an increase in demand.
General equilibrium theory provides a framework for analyzing how changes in one part of the economy, such as tax increases, sudden commodity price fluctuations or new environmental regulations, are transmitted through the system and can trigger a chain of readjustments. Aggregate demand theory has helped explain why restrictions deriving from classical consumer theory on individual demand are not inherited at the aggregate level.
Among the results of Sonnenschein and Mas-Colell's work is a pricing model based on the general equilibrium theory widely used by today's economists. The theory starts from the idea that "the value of a good to a given individual is determined by consumer preferences, technology and the distribution of wealth," Sonnenschein explained. All these elements interact in the same way water finds the same level in two interconnected containers.
Mas-Colell was Sonnenschein's student when he was on the faculty of the University of Minnesota.
Sonnenschein was president of the University of Chicago from 1993 to 2000. He is a member of the National Academy of Sciences, a fellow in the American Academy of Arts and Sciences and a member of the American Philosophical Society. He has served as provost of Princeton University and dean of the School of Arts and Sciences at the University of Pennsylvania.
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