The picture taken on a screen in Stockholm on Oct. 11, 2010 shows winners of the 2010 Nobel Prize in Economics (from L to R) Americans Peter Diamond and Dale Mortensen, and Christopher Pissarides, born in Cyprus and now working in Britain. The 2010 Nobel Prize for Economics was awarded Monday to three economists from the United States and Britain "for their analysis of markets with search frictions." [Xinhua/Wu Ping]

By Chen Xuefei, CRI's correspondent in Stockholm

Why are so many people unemployed although there are a large number of job openings? How does economic policy affect unemployment?

The winners of this year's Nobel Prize in economics have developed a theory to answer these questions.

The Royal Swedish Academy of Sciences awarded the Nobel Prize in economics to three academics��Americans Peter Diamond of the Massachusetts Institute of Technology and Dale Mortensen of Northwestern University, and British-Cypriot Christopher Pissarides of the London School of Economics and Political Science��for their analysis of markets with "search frictions."

Staffan Normark, Permanent Secretary of the Royal Swedish Academy of Sciences, made the announcement Monday.

The three Nobel laureates have formulated a theoretical framework for search markets that analyzes markets in which buyers and sellers do not always make immediate contact with one another such as employers who are looking for employees and workers who are trying to find jobs.

Since the search process requires time and resources, it creates frictions in the market. During such search markets, the demands of some buyers will not be met, while some sellers will not be able to sell as much as they would like. Simultaneously, there are both job vacancies and unemployment in the labor market.

Diamond analyzed the foundations of search markets, while Mortensen and Pissarides expanded the theory and have applied it to the labor market.

The models help people understand the ways in which unemployment, job vacancies and wages are affected by regulation and economic policy, the academy said. This may refer to benefit levels in unemployment insurance or rules regarding the hiring and firing of workers.

One conclusion of their theoretical framework is that more generous unemployment benefits give rise to higher unemployment and longer job search times, the academy said.

Search theory also has been applied to other areas, including the housing market. As the number of homes up for sale varies over time, so does the time it takes for a house to find a buyer and the parties to agree on the price.

Search theory has also been used to study questions related to monetary theory, public economics, financial economics, regional economics and family economics, the academy said.

Diamond (70), Mortensen (71) and Pissarides (62) will equally share the 10-million-kronor (US$1.5 million) prize.

The award was established in 1968 in memory of Swedish inventor and industrialist Alfred Nobel, but was not an original part of his will which set up the prizes.