Erwin Diewert, Distinguished Fellow 2008

Walter Erwin Diewert’s career has been a quest to develop tools for economic modeling and econometrics that can be applied to practical economic problems. He was a leader in using the tools of duality theory to develop flexible functional forms in consumer theory and production theory, and he made deep and original contributions to the measurement of supply and demand in systems that are consistent with economic optimization. He has been a leader in the development of empirical welfare economics and applied general equilibrium modeling. He has had a major impact on the theory and construction of economic index numbers. The widely used generalized Leontief cost function that Diewert developed in 1967 to explain the demand for multiple types of labor in Canadian manufacturing was the first general purpose system for empirical determination of patterns of factor substitution, and this became the model for development of other forms such as translog cost functions and normalized quadratic profit functions. Another important development that Diewert made using the tools of duality theory started from a formulation of revealed preference theory due to Afriat, and formulated a linear programming problem whose solutions defined the manifold of consistent preferences. Diewert also contributed to computational general equilibrium modeling, first through the integration of econometrically-estimated production and utility functions, or their duals, into a general equilibrium system, and second through refinement of the Negishi-Mantel algorithm for solving a general equilibrium problem as an optimization problem for an iteratively-weighted sum of individual utility functions. Diewert has made major contributions to theoretical and practical research on index numbers. He summarized and tightened the theory of exact and superlative index numbers, and clarified the role of index numbers in the formation of aggregated commodity groups. His contributions to this subject are reflected in the practices of Statistics Canada and other national statistical agencies. Diewert’s lifetime contributions exemplify the power of economic theory, taken seriously and firmly tied to data, to illuminate and solve problems in applied economics.