Nobel prize winning economist Franco

Nobel prize winning economist Franco Modigliani dies

From the Washington Post obituary by Adam Bernstein ("Franco Modigliani Dies; Won Nobel in Economics"):

"...His employer for the last 41 years was MIT, but the work that would win him the Nobel began in the early 1940s, shortly after he immigrated to the United States from his native Italy to escape the fascist policies of Benito Mussolini. He said he focused on savings because it "permits investment and capital formation, which is in turn what is behind growth and well-being."

"Working off the earlier ideas of John Maynard Keynes and others, Dr. Modigliani's major contribution to the field of savings was the "life-cycle hypothesis." His idea, which helped countries formulate pension and retirement systems, held that people at all levels of society generate savings with retirement in mind -- but for their own final years and not for their descendants. That meant, he said, that one saved or spent money according to their income stream at different stages of life and their projected life span..."

The New York Times obituary, by Louis Uchitelle, is here: "Franco Modigliani, 85, Nobel-Winning Economist, Dies".

"...The Nobel he received in 1985 also honored him for his insights into corporate financing. Working with Merton H. Miller, who won a Nobel in 1990 for his contribution, Mr. Modigliani demonstrated that leveraging a company through a lot of debt did not in itself affect a corporation's value.

"Until Mr. Modigliani and Mr. Miller came along, much attention had been devoted to determining just the right mix of debt and equity. But the payoff from expansion through debt, for example, is offset by the risk that the company might not be able to repay the debt. What investors focus on, in fact, is profitability, and they offset the risk of purchasing stock in a leveraged company by holding safer investments in their portfolios..."

Elsewhere, here is the Modigliani page at the Nobel site: "Franco Modigliani " (autobiography, Nobel prize lecture); An IdeaChannel archive of online Modigliani items: "Franco Modigliani"; Amazon carries Modigliani's autobiography, Adventures of an Economist, here: Adventures of an Economist (with 22 pages of browsable text); the MIT obituary is here: "Nobel laureate Franco Modigliani dies at 85 ". The Boston Globe obituary, by Louise Story and Laura Levis, is here: "Franco Modigliani, 85, MIT teacher, Nobel laureate in economics".

"Dr. Modigliani and one of his students, Richard Brumberg, were awarded the Nobel Prize for their analysis of personal savings, known as the life-cycle theory. The two asserted that individuals save money during the early part of their working lives to build up savings to be consumed in their own old age -- not to pass wealth along to their children, as Milton Friedman and other economists suggested. The theory helped explain different rates of saving in societies with relatively older or younger populations, and proved useful in predicting the behavior of various types of pension plans. Dr. Modigliani also conducted research on financial markets with fellow Nobel laureate economist Merton H. Miller. The Modigliani-Miller theorems, proposed in 1958, hold that the market value of a stock depends primarily on expectations of what the company will earn in the future. By the 1970s, the techniques Dr. Modigliani developed for calculating the value of expected future earnings became a basic tool in corporate decision-making and finance."