William Baumol, 1922-2017

William Baumol became the latest eminent economist to pass away on May 4. The Washington Post has an excellent obituary. To my mind, he was best known for his work in entrepreneurship, and for the eponymous cost disease: a deceptively simple explanation for why labour-intensive industries such as health care, education, and the arts, face increasing costs relative to other industries. His book (which I reviewed here last year) makes the important point that we shouldn't fear the cost disease, since productivity gains in other industries would more than offset the increasing costs in the industries subject to the cost disease.

I recall at a lunch with my colleagues last year, at around the time of the announcement of Hart and Holmstrom as the 2016 winners of the Nobel Prize in Economics, making the point that the Nobel committee needed to hurry up and give the award to Baumol or it might be a significant missed opportunity, given his advanced years (he was 94 at the time). This is one of those times that I wished I had been wrong.

A Fine Theorem provides an excellent summary of Baumol's wider work, including this:

I’ve always thought of Baumol as being the lineal descendant of Schumpeter, the original great thinker on entrepreneurship...

Indeed. I hadn't realised that, alongside his other contributions, he was responsible for the idea of contestable markets. He certainly had a diverse portfolio of interests, including a paper I discussed here about the psychic payoffs to workers in sports and the arts. There are several bits from his work that I reference in teaching ECON110.

Despite his contributions, my discussions with colleagues suggest he was underappreciated. Although he did get more than a few mentions in the 2016 Nobel predictions thread on Econ Job Market Rumors. He will be missed.

[HT: Marginal Revolution]