Overview and historical development

Economics has always been a major subject at NHH.  The economics research portfolio has been correspondingly large and varied, with important contributions in as diverse fields as macro, public finance, trade, development, game theory, industrial organization, economic history, resource and environmental economics, behavioral economics, and applied econometrics.  It is, nevertheless, particularly from the 1960s onwards, possible to identify a characteristic research strand, with applied microeconomics (or, stated more precisely, economics with an applied focus but with axiomatically based microeconomic underpinnings) as a unifying characteristic.

Early examples of this approach are given by Ole Myrvoll´s doctoral dissertation (1956) on the theory of wages, Preben Munthe´s dissertation (1960) on cartels, and Frøystein Wedervang´s pioneering book (1964) on populations of firms.  The breakthrough for internationally oriented, micro based research at NHH came, however, in the late 1960s with the pioneering work of Karl Borch, Jan Mossin and Agnar Sandmo on the economics of uncertainty.  Sandmo was the junior of the three and the only one in the department of economics, but he quickly became the most productive, most influental and internationally best known economist in Norway since Ragnar Frisch and Trygve Haavelmo.

Sandmo center stage

Sandmo started out with a number of papers on uncertainty, but he gradually moved into public economics, which was to become his chief research area for the next forty years.  His contributions are numerous -- he has published around 170 articles and books -- and his articles on production decisions under uncertainty, on optimal taxation, and on green taxes are among the most widely cited articles in their fields.

Borch, Mossin and Sandmo created a modern, international research tradition at NHH.  They also trained or stimulated a number of others -- Terje Hansen, Steinar Ekern, Kåre P Hagen, Finn Kydland, Victor Norman, Erling Steigum and Jan Tore Klovland, to mention some.

Of these, the one who most closely followed in Sandmo´s footsteps was Kåre P. Hagen.  He has made a number of important contributions both in the uncertainty and the public economics areas -- with his work on optimal shadow prices for budget-constrained public firms (1983) as an example. In more recent years, Fred Schroyen and Karl Rolf Pedersen have represented this tradition in the department, with a number of contributions on the theory of optimal taxation. 

In addition to public economics and the economics of uncertainty, three other areas must be mentioned in any survey of NHH contributions to economics in the 1970s and 80s.

Kydland and the nobel prize

The first is the work by Finn Kydland on what was to become known as new classical macroeconomics.  His papers with Edward Prescott on real business cycles and on rules versus discretion in macroeconomic policy, for which they were given the Nobel Prize in 2004, were largely written at NHH.  They also belong (paradoxically, perhaps) in the applied microeconomics tradition in the sense that they are concerned with the microeconomic foundation for macroeconomic theory and macro policy. Erling Steigum also made a number of important contributions to the field of macroeconomics in this period, particularly on the theory of investment behavior. More recently, he and Øystein Thøgersen have done important work on fiscal policy and social security. Moreover, other recent contributions include Gernot Doppelhofer’s work on growth theory, and Krisztina Molnar’s work on monetary policy.

The second main area is the work by Kåre P Hagen (with Jacque Drèze) on the basic theory of product differentiation (1978) and by Victor Norman on product differentiation and international trade (1976).  These were early contributions to what was to become a thriving research area internationally in the 1980s and 90s. In his book with Avinash Dixit (Dixit and Norman 1980), Norman made a major contribution to the modernization and generalization of international trade theory. This book broke new ground both in its application of duality theory to international trade and in its treatment of imperfect competition, as acknowledged by the Nobel Prize committee in their scientific report in 2008, and has also been widely used as a graduate textbook in economics departments the world over. This work was also related to Terje Hansen´s pioneering work (with Herbert Scarf) on algorithms for numerical general equilibrium modeling, which also generated contributions by Lars Mathiesen and Jan I Haaland on applied general-equilibrium simulation models. In recent years, Linda Orvedal and Gregory Corcos have also contributed to the field of international economics, while Roger Bivand and Eirik Vatne have contributed to economic geography.

The third area that must be mentioned is environmental and natural resource economics, where Agnar Sandmo made important, early contributions to the use of Pigovian taxes for environmental purposes.  Geir B. Asheim and Rögnvaldur Hannesson were correspondingly early contributors to the theory of optimal use of non-renewable and renewable natural resources, while Rolf Brunstad has contributed to agricultural economics.

Looking back at economics at NHH from the 1960s to the early 1990s, one is struck by the fact that while the research had a clear applied (and at times even numerical) focus, there was hardly any empirical research.  A notable exception was Jan Tore Klovland, who has done important empirical work on monetary economics and economic history since the early 1980s and inspired the more recent work in economic history in the department by Ola Grytten, Stig Tenold, Bjørn Basberg and Liam Brunt.   

New research areas

During the last decades three new research areas have developed in the department, strengthening further the applied microeconomic tradition, but also introducing new empirical approaches and econometric techniques.

First out was the development of modern industrial organization research based on applied game theory. Lars Sørgard initiated this development that also inspired Siri Strandenes, Einar Hope and Sissel Jensen to analyze market structures and implications for economic policy for specific areas such as electricity, transport, and later on telecommunication. This group also contributed to introduce modern empirical research in the department, notably by the work of Frode Steen on cartels and collusion, Kurt Brekke on health care and pharmaceutical markets and Hans Jarle Kind on retail markets and media economics, and also initiated important theoretical work by Eirik Kristiansen on network externalities and contracts in financial markets.

The second development was the establishment of a group in empirical labor economics in the late 1990s at NHH led by Kjell G. Salvanes. The group started to work on different projects in labor economics and family and education economics, using newly developed micro econometric techniques and the extensive register data sets to get a better understanding of such diverse topics as the restructuring processes in the Norwegian economy and dynamics within the family,  the importance of early childhood investment for adult outcomes, and intergenerational mobility, where in particular Kjell G. Salvanes and his co-authors made a number of important contributions. Some of the work was also closely related to questions of interest in macroeconomics, notably the work of Øyvind Anti Nilsen on investments and labor productivity, and to international economics, as illustrated by the recent important work of Ragnhild Balsvik on labor mobility. Other contributors to this area were Erik Ø. Sørensen and Astrid Kunze.

The last new research area in the department was the establishment of a group in experimental and behavioral economics, which included Ingvild Almås, Alexander Cappelen, Erik Ø. Sørensen, and Bertil Tungodden. They initiated a number of theoretical and empirical studies of how to introduce moral motivation in microeconomic models and welfare analysis, and the group is presently an active part of the international research frontier in this field. Members of this group are also involved in research in development economics. Together with Kjetil Bjorvatn and a number of PhD students, they have combined lab experiments and field experiments in the study of microfinance and entrepreneurship, and there have also been a number of studies, both theoretical and empirical, of issues of poverty and inequality measurement.