The BBVA Foundation Frontiers of Knowledge Award in the Economics, Finance and Management category goes, in this fourteenth edition, to Matthew O. Jackson for his pioneering work on illuminating the role of networks in economic and social life.
Most economic and social transactions are bilateral, that is, they occur between pairs of individuals (“individuals” could be persons, firms, organizations, etc.). But, unless a communication link has been established between the individuals, no transaction may be possible. Thus, the network of links between individuals is critical to determining the sort of economy or society that results.
Matthew Jackson recognized the importance of networks for economics over 25 years ago. His early theoretical work with Asher Wolinsky (Journal of Economic Theory, 1996) showed how to predict which networks will form depending on the costs and benefits of forming links, and how those networks differ from the optimal ones. In many subsequent contributions, he and his co-authors answered such questions as 1) When can communication through networks successfully aggregate individuals’ imperfect information and arrive at the truth?, 2) When do networks of firms or banks contribute to systemic stability or when do they undermine it?, and 3) When introducing important information (e.g., a new technology, microfinance program or vaccination camp) in a rural village of a developing country, which villagers should we inform first to make sure that word-of-mouth spreads the news quickly?
Jackson’s work has inspired an enormous literature, both theoretical and empirical, in which networks play an essential role in helping us understand financial markets, economic development, and a host of other economic phenomena.