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Daron Acemoglu, Simon Johnson and James Robinson have been awarded the 2024 Nobel Prize in Economic Sciences for their groundbreaking research on how institutions are formed and how they affect a society’s prosperity. The Royal Swedish Academy of Sciences announced the prize on Monday, recognising their work in explaining the role political institutions play in shaping economic growth and development. The prestigious award, which is worth 11 million Swedish crowns (approximately USD 1.1 million), is the final Nobel prize to be awarded this year.

The laureates developed a model that outlines three key factors influencing the formation and transformation of political institutions. According to their study, first, a conflict arises over how resources are allocated and who holds decision-making power—whether the elite or the masses. Second, the masses can mobilise and challenge the ruling elite, demonstrating that societal power goes beyond mere decision-making authority. Lastly, the "commitment problem" arises when the elite are forced to relinquish power to the general populace.

Their research highlights the crucial role of institutions in determining a nation’s prosperity. Societies that lack a strong rule of law and rely on exploitative institutions struggle to achieve economic growth and positive change. This insight helps explain why some countries prosper while others remain trapped in poverty and stagnation.

A significant portion of their research examines the impact of colonisation on global institutions. The laureates found that during colonisation, different types of institutions were introduced, often depending on the goals of the colonisers. 

In some regions, extractive institutions were set up to exploit local populations and resources. In others, more inclusive institutions were established, benefiting European settlers and, over time, contributing to the prosperity of those societies. This institutional divergence helps explain why some former colonies that were initially rich are now poor and why the reverse is true in other cases.

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Acemoglu, Johnson, and Robinson argue that countries with extractive institutions often experience low economic growth because these systems benefit the ruling elite in the short term. Inclusive institutions, by contrast, can generate long-term benefits for the entire population, but those in power resist reforms that might jeopardise their control.

The laureates also explore why democracies sometimes emerge. When elites face a credible threat of revolution, they are forced to choose between maintaining power through empty promises of reform or transferring power to establish democracy. The inability to make credible promises of change often leads to the latter.

Jakob Svensson, Chair of the Prize Committee, emphasised the relevance of the laureates' work, stating, "Reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this."