Incentives, innovation and growth

(Press-News.org) Over the past decades, the economic sciences have seen fundamental breakthroughs in our understanding of human responses to incentives in the face of uncertainty and strategic interactions. But what is the scope and what are the limits for applying these models in the design of better institutions and better policies? And to what extent can they teach us what is needed to encourage the innovation that drives economic growth and social wellbeing? These are among the questions to be debated among 17 Nobel Laureates in Economic Sciences and approximately 450 aspiring young economists from more than 80 countries in Lindau, Germany, next week. The 5th Lindau Meeting on Economic Sciences will bring them together for a unique dialogue across generations, cultures and scientific backgrounds. The meeting will open on 20 August with a keynote address by the German Chancellor Angela Merkel, and will also feature "a panoramic view on the situation and prospects in Latin America" by Mario Vargas Llosa, the 2010 Nobel Laureate in Literature.

From 20 to 23 August, the participating laureates and the young economists will have plenty of opportunity for an intensive exchange of ideas. The numerous lectures, discussions, master classes and panel discussions of the programme will address central fields of the discipline, ranging from econometrics, game theory, and neo-classical growth theory to mechanism design and systemic risk measurement. The overarching question "How useful is economics – how is economics useful?" will also be subject of the meeting's closing panel debate on Mainau Island on Saturday, 23 August. As a special guest of honour, Queen Silvia of Sweden will attend the concluding events that day.

Economics has always been concerned with incentives. But for a long time, most formal analyses of incentive issues were limited to the behaviour of people or corporations in markets where the institutional environment was given. Since the 1960s, our understanding of incentives and incentive problems has been revolutionised by contributions that identified asymmetric information and strategic interdependence as root causes of incentive problems and provided fundamental insights about the scope for dealing with these problems by institutional design.

Panel Discussion: "Strategic Behaviour, Incentives and Mechanism Design"

The importance of this research was recognised by the award of the Nobel Prize in 1996 to Sir James Mirrlees and William Vickrey for their 'fundamental contributions to the economic theory of incentives under asymmetric information' and in 2007 to Leonid Hurwicz, Eric Maskin and Roger Myerson 'for having laid the foundations of mechanism design theory'. At the Lindau Meeting, a panel discussion entitled "Strategic behaviour, incentives and mechanism design" and featuring the three Nobel laureates Eric Maskin, Sir James Mirrlees and Roger Myerson will discuss the underlying ideas and their development.

Edmund Phelps: "Bringing Dynamism, Home-grown Innovation and Human Flourishing into Economics"

The 2006 Nobel Laureate in Economic Sciences, Edmund Phelps, worries that there has been a loss of dynamism in the western world, which is stalling innovation, reducing productivity growth and threatening our future prosperity. His lecture at the Lindau Meeting, entitled "Bringing dynamism, home-grown innovation and human flourishing into economics" will explore what is needed to restore the grassroots dynamism that can drive transformational innovation for better lives – or what he calls 'mass flourishing'. His view is that most innovation is not driven by a few isolated visionaries, but rather by dynamism on a mass scale: millions of people empowered to dream up, develop and market new products and processes.

Edward Prescott: "Innovation in Neoclassical Growth Theory"

In his lecture "Innovation in neoclassical growth theory", the 2004 Nobel Laureate in Economic Sciences, Edward Prescott, will describe research showing that the predicted GDP gains from openness to direct foreign investment are three times bigger than standard trade models predictions, but still only a third of what the empirics indicate. He will argue that other factors are important, with the leading candidates being lowering the incentives to set barriers to more efficient production and increasing the rate at which knowledge useful in production diffuses.

INFORMATION: The Lindau Meetings

From their beginning in 1951 as a European initiative of post-war reconciliation, the Lindau Nobel Laureate Meetings have evolved into a unique forum for unconstrained scientific exchange among physiologists, physicists, and chemists. The Lindau Meetings are designed to educate, inspire, and connect. Every year esteemed Nobel laureates and aspiring young scientists from all over the world come together at Lindau to engage in an open dialogue across generations and cultures. Regular meetings on economic sciences were enacted in 2004. Here some of the world's most dedicated young economists have the opportunity to pose the questions and discuss the issues they are most concerned about or interested in.