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October 11, 2000

The Royal Swedish Academy of Sciences has decided that the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 2000, will be shared between

James J. Heckman
University of Chicago, USA, and

Daniel L. McFadden
University of California, Berkeley, USA.

In the field of microeconometrics, each of the laureates has developed theory and methods that are widely used in the statistical analysis of individual and household behavior, within economics as well as other social sciences.

Citation of the Academy:
“to James Heckman for his development of theory and methods for analyzing selective samples and to Daniel McFadden for his development of theory and methods for analyzing discrete choice. “

Microeconometrics – on the boundary between economics and statistics – is a methodology for studying micro data, i.e., economic information about large groups of individuals, households, or firms. Greater availability of micro data and increasingly powerful computers have enabled empirical studies of many new issues. For example, what determines whether an individual decides to work and, if so, how many hours? How do economic incentives affect choices of education, occupation, and place of residence? What are the effects of different educational programs on income and employment? James Heckman and Daniel McFadden have resolved fundamental problems that arise in the statistical analysis of micro data. The methods they have developed have solid foundations in economic theory, but have evolved in close interplay with applied research on important social problems. They are now standard tools, not only among economists but also among other social scientists.

Available micro data often entail selective samples. Data on wages, for instance, cannot be sampled randomly if only individuals with certain characteristics – unobservable to the researcher – choose to work or engage in education. If such selection is not taken into account, statistical estimation of economic relationships yields biased results. Heckman has developed statistical methods of handling selective samples in an appropriate way. He has also proposed tools for solving closely related problems with individual differences unobserved by the researcher; such problems are common, e.g. when evaluating social programs or estimating how the duration of unemployment affects chances of getting a job. Heckman is also a leader of applied research in these areas.

Micro data often reflect discrete choice. For instance, data regarding individuals’ occupation or place of residence reflect choices they have made among a limited number of alternatives. Prior to McFadden’s contributions, empirical studies of such choices lacked a foundation in economic theory. Evolving from a new theory of discrete choice, the statistical methods developed by McFadden have transformed empirical research. His methods are readily applicable. For example, they prevail in models of transports and are used to evaluate changes in communication systems. Examples of McFadden’s extensive applications of his own methods include the design of the San Francisco BART system, as well as investments in phone service and housing for the elderly.

Daniel L. McFadden (US citizen), 63, was born in Raleigh, NC in 1937. Since 1990 he holds the E. Morris Cox Chair in Economics at the University of California, Berkeley.

The Prize amount, SEK 9 million, will be shared equally between the Laureates.

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