Historical research overview
An overview at the celebration of NHH's 75th anniversary in 2011
The modern internationally oriented research tradition at the department originated in the 1960s with the late professors Karl H. Borch and Jan Mossin. They were among the founders of the economics of uncertainty, illustrating the power of abstract theorizing and formal analysis as foundations for deriving precise insights into complex economic issues and decision problems. Borch and Mossin made seminal contributions to the theory of financial markets in general and insurance markets in particular, as well as to corporate finance and to management science. They were also driving forces in establishing NHH as an internationally recognized research institution.
Borch’s pioneering work on Pareto-optimal risk exchanges in reinsurance opened a new insurance economics area within actuarial science, providing a deeper understanding of the preferences and behavior of the parties in a reinsurance market. He also linked reinsurance markets to asset pricing models and to theories of contingent claims long before option pricing models became fashionable.
During his period as a professor, from 1962 till his death in 1986, he had more than 150 scholarly publications on topics of uncertainty in economics in various forms. For the generation of researchers who got attached to NHH, especially in the early part of this period, Borch had an enormous influence – as a teacher, advisor and motivator as well as a role model. This includes Agnar Sandmo, Terje Hansen, Steinar Ekern, Finn Kydland, Thore Johnsen, Carl J. Norstrøm and Frøystein Gjesdal, to mention some.
Jan Mossin made innovative and high quality contributions to financial economics and the theory of finance, but also to the economics of uncertainty in general, including areas of operations research and non-finance areas of economics. He may be particularly well known as one of the co-developers (along with Sharpe, Lintner, Treynor, and others) of the capital asset pricing model CAPM, and for a simplifying multiperiod asset allocation model. A large and still increasing number of citations demonstrate his lasting impact on academic research, and his important works continue influencing practitioners all over the world.
The research within the department has continued and built on this tradition with a stronghold in theoretical research. Over time it has branched out into addressing a variety of issues within different fields, expanding into applied research and also adding more empirical focus. It is currently organized in five areas that partly reflect the direct heritage from Borch and Mossin; namely Financial Markets, Corporate Finance, and Management Science, and partly reflect inclusion of Mathematics and Statistics, as well as expansion into a new area of Energy, Natural Resources and the Environment. Several department members do research across these areas or have moved between the areas over time.
In financial markets, the department has maintained its focus on theoretical research on asset pricing, insurance, mathematical finance, financial derivatives and risk management. More recent empirical research focuses on the behavior of financial markets, including pricing of derivatives and using these financial instruments to manage risk.
Knut K. Aase and Svein-Arne Persson carry on insurance economics in the spirit of Borch. Petter Bjerksund, Steinar Ekern and Gunnar Stensland were among the early developers of the “real options” approach to incorporate flexibility in project valuation, later joined by Kristian Miltersen and Jøril Mæland. Knut K. Aase, Steinar Ekern, Jørgen Haug and Thore Johnsen have made mathematical finance contributions to the asset pricing literature.
Most of these researchers have also further contributions on derivatives and on risk management in general. Empirical research in the financial markets area has been contributed by Øystein Gjerde and Frode Sættem (partly with Kjell Henry Knivsflå) with empirical studies of stock market properties and financial reporting.
During the last decade, there has been a growth of research on corporate finance, along with an increased emphasis on empirical studies, with significant contributions from Karin Thorburn, Tore Leite and Per Östberg on takeovers, corporate restructuring, financial structure, IPO’s and empirical portfolio choice.
Kjell Nyborg made important contributions to research on market microstructure and liquidity. Carsten Bienz has contributed with research on venture capital and Tommy Stamland on estimation of the value of statistical life. Recently, corporate taxation has also become an active area of research, lead by Guttorm Schjelderup.
In management science there were early contributions by Mossin, but yet more remarkable are the pioneering contributions by Terje Hansen on fixed point algorithms for general equilibrium modelling and related works in the late 1960s/early 1970s. Hansen was in 1973 awarded the prestigious Frederick W. Lanchester Prize for the book The Computation of Economic Equilibria (with Herbert E. Scarf). Lars Mathiesen made a related contribution after joint follow-up work with Hansen on applications of the ideas to practical problems.
Following these early contributions in management science, Kurt Jörnsten, Terje Lensberg and others have made significant contributions in networks, integer programming, and cooperative games. Jörnsten continued the tradition from Hansen, but while Hansen used linear and quadratic programming in a number of applications, Jörnsten used mixed integer programming, and the main application areas were in the energy sector.
The Operations Research group was further strengthened when Michael Rönnqvist joined the group. His application of OR methods in forestry lead among other things to a paper on cost allocation in collaborative forest transportation that received the EURO Management Science Strategic Innovation prize in 2007. Contributions in supply chain management have also been made by Sigrid Lise Nonås and Jens Bengtsson.
The department’s vision of management science is wide and includes areas of managerial/organizational economics and industrial economics. Research in these areas has been prolific, especially in the last decade, with contributions by Trond E. Olsen and Iver Bragelien on the economics of contracts, incentives and organizations, by Øystein Foros on business strategy and regulation, especially in media and telecommunications, and by Jarle Møen, partly in cooperation with Hans K. Hvide, on entrepreneurship, R&D investments and human capital. Bjørn Svendsen and Per Ivar Gjærum have worked on issues in health economics and project analysis, respectively.
Energy, Natural Resources and the Environment
Within energy, natural resources and the environment, research on market design issues have been performed by Mette Bjørndal, Endre Bjørndal and Kurt Jörnsten, as a result of the liberalization of electricity markets. Leif Sandal has been a driving force in the use of optimal control models in natural resource economics, and Gunnar Eskeland has contributed with analyses of climate change and environmental policy.
Mathematics and Statistics
Research in mathematics and statistics has been on both methodological and applied topics. Jonas Andersson and Jostein Lillestøl have research contributions in time series analysis and in statistical modeling for economic applications, with analysis of high frequency data as a recent focus. Jan Ubøe has published several articles in regional science, and Eivind Stensholt in election mathematics.
Per Manne has made contributions in complex analysis and Roman Kozlov has published extensively on numerical methods and stochastic differential equations. Lately members of the Mathematics and Statistics group and the OR/OM group have joined forces and started to work on operations management problems. Contributors include Andersson, Jörnsten, Lillestøl, Nonås, Sandal and Ubøe, in a project that further emphasizes the positive effect of joint research across the various scientific disciplines represented in the staff of the department.