STOCKHOLM, Sweden, Oct. 12 (UPI) — The 2015 Nobel Prize in Economic Sciences has been awarded to Angus Deaton for his work on consumption that led to deeper understanding of welfare and poverty.
Deaton, 69, was awarded the prize by the Royal Swedish Academy of Sciences “for his analysis of consumption, poverty, and welfare.”
“To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,” the academy said in a statement. “More than anyone else, Angus Deaton has enhanced this understanding.
“By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics and development economics,” the academy added.
Deaton’s work revolves around three central economic questions:
Firstly: “How do consumers distribute their spending among different goods?”
Answering this question is necessary to explain and forecast actual consumption patterns. It is crucial in evaluating how different groups are affected by policy reforms, such as changes in consumption taxes. In the early 1980s, Deaton developed the Almost Ideal Demand System, a standard tool now used in academia and practical policy evaluation, which is a simple and flexible way of estimating how the demand for each good depends on the prices of all goods and on individual incomes.
“I don’t want to sound like a blind optimist” #NobelPrize http://t.co/nHZufytchD— The Nobel Prize (@NobelPrize) October 12, 2015
Secondly: “How much of society’s income is spent and how much is saved?”
It is necessary to understand the connection between income and consumption over time to explain capital formation and the magnitudes of business cycles. Deaton’s work in the 1990s showed that summing up how individuals adapt their own consumption to their individual income is the best method to explain the connection between income and consumption.
Thirdly: “How do we best measure and analyze welfare and poverty?”
Deaton’s more recent work shows how measures of individual household consumption levels can be used to understand mechanisms behind economic development, which also helped compare the extent of poverty across time and place.
“It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family,” the academy said. “Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.”
Deaton, born in Edinburgh, Scotland, will receive a prize of nearly $1 million. He is has been a professor of economics and international affairs at New Jersey’s Princeton University since 1983.
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