Modigliani received the Nobel Prize for his pioneering research in several fields of economic theory that had practical applications. One of these was his analysis of personal savings, termed the life-cycle theory. The theory posits that individuals build up a store of wealth during their younger working lives for the purpose of consuming these savings during their own old age, not for the purpose of passing them on to their descendants. The theory helped explain the varying rates of savings in societies with relatively younger or older populations and proved useful in predicting the future effects of various pension plans.
Modigliani also did important research with the American economist
Merton H. Miller on financial markets, particularly on the respective
effects that a company's financial structure (e.g., the structure and
size of its debt) and its future earning potential have on the market
value of its stock. They found, in the so-called Modigliani-Miller theorem,
that the market value of a company's stock depends primarily on investors'
expectations of what that company will earn in the future. This dictum
had come to be regarded as self-evident by the 1970s, and the technique
Modigliani invented for calculating the value of a company's expected
future earnings became a basic tool in corporate decision-making and
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