1) Ed Prescott – A powerhouse economic theorist. He has seminal insights into the role of “real” (i.e., non-monetary) forces in business cycles and whether returns on stocks (7% average) and bonds (a little over 1% on average) reflect the relative risk of these instruments. I am also a fan of his work on monopolies –often government monopolies — as barriers to innovation. His latest work suggests that Americans work more than Europeans because our marginal tax rates are lower.
2) Eugene Fama – His work on empirical finance tested whether the market rewards risk-taking and which variables might predict “excess returns.”
3) Gordon Tullock – My colleague, read my previous remarks.
4) Oliver Williamson – Asset specificity is his key idea. You invest in relationships with business partners and much of the value is specific to that relationship. Then things start going wrong…
5) Paul Krugman – Krugman winning the prize today would mean something very different than Krugman winning the prize five years ago. The chance of this happening is either much greater or much less than I think, I am simply not sure which.
6) Robert Barro – He has shown longer “legs” than his critics seemed to think he would. A powerhouse of macroeconomics and growth. It is less well known that he also did early versions of political business cycle theory and sticky price macroeconomics. I do not believe, however, that the Swedes will choose this year to reward someone who has to some (relative) extent defended Bush economic policies. (If you are wondering, Hans Blix is a heavy favorite to win the Peace Prize.) Barro is a very effective economic popularizer, in addition to his scholarly work.
7) Edmund Phelps – His work on labor markets laid the basis for the next thirty years of macroeconomics. He is not leading the betting market, but many observers consider him to be “due.”
Who is missing? Thomas Schelling is the most notable living theorist of spontaneous order and a key father of applied game theory. Like Phelps, he is “due.” Most of the people on the “New Candidates” list don’t have much of a chance, and here is a list of expired candidates.