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Institute professor receives Nobel Prize

By Ben Stanger

Franco Modigliani, Institute Professor of economics and finance, became the sixth member of the MIT faculty to win a Nobel Memorial Prize and the second faculty member to win the prize in Economic Science. Modigliani was notified of the award last Tuesday and will receive it Dec. 10.

The selection committee awarded the prize to Modigliani for his work on consumer saving behavior and corporate financial structure in relation to stock value.

"It was not a question of if, but when he would get it," said Professor of Management Robert C. Merton '70, a long-time colleague and ex-student of Modigliani.

"Economists all over the world are students, admirers and friends of Franco Modigliani," said Paul A. Samuelson, professor of economics and the first American to win the Nobel Prize in Economic Science.

Modigliani's life-cycle hypothesis of consumption and savings, a model of lifetime saving strategies, was one of the accomplishments cited by the Nobel committee.

This hypothesis has been the key model for examining countries with social security systems, according to Robert M. Solow, Institute Professor of economics at MIT. "He's been a great thing for MIT," Solow said.

Modigliani was also chosen to receive the 1985-86 James R. Killian, Jr. Faculty Achievement Award last May. The faculty selection committee cited Modigliani's life-cycle hypothesis as the "dominant paradigm" for looking at the effect of the Social Security program on savings. Modigliani will deliver two Killian lectures this spring.

Modigliani's corporate finance theories are "still at the core of financial decision making" 25 years after they were formulated, Merton said. These theories propose that the value of a corporation does not vary with changes in debt.

His theories are elegant and seem intuitive once they are derived, Merton added.

"So fertile has been his cooperation with other scholars that there is a whole chain of important discoveries known as the Modigliani-Miller Theorem, the Modigliani-Brumberg life-cycle hypothesis, the Modigliani-Ando model of the American economy, the Modigliani-Brunberg paradox," Samuelson said.

Modigliani holds joint appointment from the Department of Economics and the Sloan School of Management. He teaches a graduate course, Capital Markets and Financial Insitutions (15.432), in the spring, and two seminars, one in Money and another in Finance, in the fall.

Modigliani was born in Rome in 1918 and received degrees from the University of Rome and the New School for Social Research.

He joined the MIT faculty in 1962, and was appointed Institute Professor in 1970. He has consulted for the Federal Reserve System, the US Treasury Department, the Bank of Italy and the Bank of Spain.

MIT affiliate

wins peace prize

Dr. Eric S. Chivian, a psychiatrist in the MIT Medical Department, is the recipient of the Nobel Peace Prize as a co-founder of the International Physicians for the Prevention of Nuclear War, Inc. Chivian is Treasurer of the organization, which was founded in 1980.