http://nobelprize.org/nobel_prizes/economics/laureates/2010/press.html
Press Release
11 October 2010
The Royal Swedish Academy of Sciences has decided to award The Sveriges Rik*****ank Prize in Economic Sciences in Memory of Alfred Nobel for 2010 to
Peter A. Diamond
Massachusetts Institute of Technology, Cambridge, MA, USA,
Dale T. Mortensen
Northwestern University, Evanston, IL, USA
and
Christopher A. Pissarides
London School of Economics and Political Science, UK
"for their analysis of markets with search frictions"
Markets with search costs
On many markets, buyers and sellers do not always make contact with one another immediately. This concerns, for example, employers who are looking for employees and workers who are trying to find jobs. Since the search process requires time and resources, it creates frictions in the market. On such search markets, the demands of some buyers will not be met, while some sellers cannot sell as much as they would wish. Simultaneously, there are both job vacancies and unemployment on the labor market.
This year's three Laureates have formulated a theoretical framework for search markets. Peter Diamond has analyzed the foundations of search markets. Dale Mortensen and Christopher Pissarides have expanded the theory and have applied it to the labor market. The Laureates' models help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy. This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.
Search theory has been applied to many other areas in addition to the labor market. This includes, in particular, the housing market. The number of homes for sale varies over time, as does the time it takes for a house to find a buyer and the parties to agree on the price. Search theory has also been used to study questions related to monetary theory, public economics, financial economics, regional economics, and family economics.