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Nobel Prize for Economics Reflects Issues on U.N. Development Agenda

UNITED NATIONS, Oct 13 2015 (IPS) - When the Royal Swedish Academy of Sciences awarded the 2015 Nobel Prize in Economics to Professor Angus Deaton of Princeton University, the accolade had a significant relevance to the United Nations.

Angus Deaton. Credit: blogs.lse.ac.uk

Angus Deaton. Credit: blogs.lse.ac.uk

The Academy bestowed the honour on the British-born Deaton, 69, primarily for his analysis of consumption, poverty and welfare.

Deaton’s research reflects some of the socio-economic issues on the U.N. agenda, including poverty alleviation, economic inequalities, consumption patterns, household incomes, gender empowerment and social security.

Asked for his comments, U.N. Deputy Spokesperson Farhan Haq told IPS the Secretary-General “appreciates the work that Mr. Deaton has done on poverty”.

“Our Department of Economic and Social Affairs (DESA) has drawn attention to some of his work, including his lecture on poverty that you might find interesting,” he said. https://www.youtube.com/watch?v=t-Ax2sKhDrY

According to the Academy, Deaton has enhanced the understanding of some of these issues more than anyone else.

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”.

According to the London Guardian, Deaton’s work complements studies by Thomas Piketty and Sir Tony Atkinson, focusing primarily on wealth and income inequality, and examining patterns of consumer spending to illustrate growing inequality in health and wellbeing.

He is perhaps best known for the Deaton Paradox – “sharp shocks to income do not appear to cause equally large shocks to consumption.”

The Guardian said that in his most recent book, The Great Escape: Health, Wealth and the Origins of Inequality, Deaton argues that analysis of economic data shows that while most people in the world have gained in terms of health and wellbeing from higher national incomes, there are many groups that have missed out.

The newspaper also said Deaton, in his latest research, “focuses on the determinants of health in rich and poor countries as well as on the measurement of poverty in India and around the world”.

Jean Dreze, an economist who has worked with Deaton, was quoted as saying: “Angus Deaton is not only a brilliant economist but also a formidable scholar and a great writer. He has shown how intelligent use of survey data can illuminate momentous issues of human welfare and contribute to public reasoning.”

In awarding the prize to Deaton, the Academy analysed some of his theories, as follows:

“How do consumers distribute their spending among different goods?

Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups.

In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

How much of society’s income is spent and how much is saved?

To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time.

In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income.

This research clearly demonstrated why the analysis of individual data is key to untangling the patterns seen in aggregate data, an approach that has since become widely adopted in modern macroeconomics.

How do we best measure and analyze welfare and poverty?

In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing 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.”
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