A Nobel prize for explaining why nations fail or succeed Premium

2024 Economics Nobel laureates explain how institutions shape prosperity, shedding light on global economic disparities and development paths.

The story so far: The 2024 Economics Nobel prize was awarded to U.S. economists Daron Acemoglu, Simon Johnson and James A. Robinson on Monday “for studies of how institutions are formed and affect prosperity.” The prize committee credited the winners for enhancing our understanding of the root causes of why countries fail or succeed.

Also read | Economics Nobel Winners 2024 and their studies on ‘how institutions are formed and affect prosperity’

Why some countries are rich while others are poor is a question that has been debated by economists for a long time now. According to the Nobel committee, the richest 20% of countries in the world today are 30 times richer in terms of average income than the poorest 20%. Ever since the Industrial revolution led to the “Great Divergence” in living standards between the East and the West, various theories have been proposed to explain the huge difference in living standards in rich versus poor countries.

Some have blamed Western colonialism as the primary reason for the Western world’s prosperity even today. Other scholars have argued that disparities in natural resource endowment explains differences in economic prosperity across countries. Some others have argued that intelligence and even historical accidents could explain a nation’s fate.

The 2024 Nobel laureates, however, have argued that differences in the quality of economic and political institutions is what best explains the divergence in the economic fates of countries. This thesis is most famously elaborated in the 2012 book Why Nations Fail: The Origins of Power, Prosperity, and Poverty written by Daron Acemoglu and James A. Robinson, and also in the 2004 paper Institutions as a Fundamental Cause of Long-Run Growth, written together by all three of this year’s Nobel laureates.

Explore this year’s Nobel winners, and their achievements with this interactive guide

According to Douglass North, a Nobel laureate and a pioneer of New Institutional Economics, institutions are the “rules of the game” that define the incentives that human individuals face when dealing with each other. For example, institutions that stop the State from seizing the property of honest citizens would give ordinary citizens the incentive to work hard without the fear of expropriation and that in turn would lead to general economic prosperity. Institutions that legalize expropriation, on the other hand, would affect individual incentives negatively and cause economic stagnation.