The Department of Economics was established in 1949, with the arrival of Don Patinkin from Chicago. Don Patinkin quickly gained international recognition with his book Money, Interest, and Prices (1965), which presented a synthesis of monetary and value theory and became one of the field's classic texts. Patinkin soon built a strong and diversified department, whose graduates formed the backbone of academic economists in Israel’s civil service (known as "Patinkin Boys"), the business community, as well as in Israel’s academia.

Together with Simon Kuznets and other leading economists, Patinkin co-founded the Maurice Falk Institute for Economic Research in Israel, which, in collaboration with the department, conducted foundational research on the Israeli economy. To this day, the Falk Institute remains focused on empirical studies of Israel's current economic issues. In 1991, the Center for the Study of Rationality was established under the leadership of Professors Robert Aumann and Sergiu Hart. The center serves as a hub for department researchers working in economic theory and interdisciplinary studies that connect economics with other fields of knowledge, alongside mathematicians, computer scientists, psychologists, statisticians, philosophers and other scholars.

Over the years, the department has fostered a tradition of both theoretical and empirical research, as well as involvement in shaping economic policy, following the path set out by Don Patinkin.

 

Among its many achievements, the department of economics and affiliated researchers at the Hebrew University

• Advanced game theory through the seminal work of Robert J. Aumann (Nobel laureate, 2005) beginning in the late 1950s, joined later by Menahem Yaari (Israel Prize, 1987), Ariel Rubinstein (Israel Prize, 2002), and Sergiu Hart (Israel Prize, 2018). Their groundbreaking research on repeated games, cooperative games, bargaining, and equilibrium concepts established the Hebrew University as a global center for game-theoretic research.
• Developed the national accounting system through the Falk Institute in the 1950s, which was adopted by the Central Bureau of Statistics and continues to be used for measuring economic activity and formulating economic policy to this day.
• Led the emergence of behavioral economics through the work of Amos Tversky and Daniel Kahneman in the 1970s. As faculty members at the Hebrew University, they developed their groundbreaking theories in Jerusalem and maintained connections with the university throughout their careers. Kahneman, who won the 2002 Nobel Prize in economics, served as a permanent fellow at the Federmann Center for the Study of Rationality.
• Pioneered the study of economic history in Israel through Nachum Gross and Jacob (Kobi) Metzer in the 1970s. Gross focused on the Jewish economy during the Mandate period, while Metzer analyzed economic activity across Mandatory Palestine, including comparative studies of its Jewish and Arab components. Their seminal work established the foundations for applying economic theory and empirical methods to historical research in Israel. Joseph Zeira later joined this project by studying Israel's economic history after 1948.
• Formed the most influential labor economics research hub outside the United States in the 1970s. The group – which included Yoram Ben-Porath, Giora Hanoch, Ruth Klinov, and Reuben Gronau –  pioneered groundbreaking methodologies for estimating returns to education, female participation in the labor force, the contribution of the household sector to economic activity, and the statistical estimation of wage and consumption functions.
• Designed and implemented Israel's income tax system through the work of Michael Bruno, Yoram Ben-Porath, and Shlomo Yitzhaki in the 1970s and early 1980s, a system that remains in use in Israel today. This work was complemented by Eytan Sheshinski's and Joram Mayshar's theoretical contributions to optimal taxation and tax enforcement, and by Shlomo Yitzhaki’s work on income inequality, which provided intellectual foundations for public finance in Israel. In 2000, Avi Ben-Bassat headed a public committee (which included Yitzhaki) that drafted a comprehensive reform to direct taxation in Israel to reduce exemptions and lower income tax rates. Yitzhaki later served as Israel’s chief statistician between 2001-2012.
• Orchestrated the end of hyperinflation in 1985, with economists from the department – particularly Michael Bruno (Israel Prize, 1994), and Nissan Liviatan (Israel Prize, 2007) –  formulating key policies. Bruno was later appointed Governor of the Bank of Israel and became the first to implement modern monetary policy in Israel. As governor, he transformed the financial, capital and foreign exchange markets from nationalized markets to free markets. Alongside his studies on economic growth, inflation, stagflation and input-output relationships, Bruno worked to implement his ideas through a series of reforms and later contributed his experience to the recovery of economies of other countries as the chief economist of the World Bank.
• Provided leadership to the Hebrew University with Don Patinkin and Yoram Ben-Porath serving as university rectors and presidents in the 1980s and 1990s. As rector, Ben-Porath was part of the leadership team (led by President Amnon Pazi) that rescued the university from its most severe financial crisis. Patinkin, Micha Michaely, Haim Barkai, and Jacob Metzer served as deans of the Faculty of Social Sciences.
• Transformed public infrastructure policy through Reuben Gronau in the late 1980s and 1990s, who headed a series of public committees that structured public infrastructure tariffs (communications, water, electricity) on solid economic foundations, significantly improving service efficiency and generating consumer savings.
• Spearheaded "the credibility revolution" in economics through the work of Josh Angrist (Nobel Laureate 2021) in the early 1990s, and joined by Victor Lavy, substantively changing the way evidence is brought to bear on economic analysis and imposing new standards for causal inference.
• Formulated the economic arrangement between Israel and the Palestinian Authority through the work of Avi Ben-Bassat and Ephraim Kleinman in the early 1990s, who participated in negotiating the terms of the Paris Protocol (1994).
• Restructured Israel's health system through the work of Gur Ofer in the early 1990s by analyzing the incentives and interactions between HMOs (sick funds) and designing the reimbursement system underpinning the National Health Insurance Law (1994), which revolutionized the rights of Israeli residents to receive health services. Ofer founded and led the Israel National Institute for Health Policy and Health Services Research.
• Helped create and lead the prestigious New Economic School in Moscow, with Gur Ofer serving as chairperson of its International Advisory Board (1992-2004). The NES has served as the breeding ground for some of the most notable Russian economists of our time, currently serving in leading academic positions worldwide.
• Advanced growth theory and inequality research through the seminal work of Oded Galor and Joseph Zeira. Their work on unified growth theory, human capital accumulation, automation, and the relationship between inequality and macroeconomic outcomes established new frameworks linking development patterns with wealth distribution, credit market imperfections, technological innovation, and the demographic transition.
• Pioneered the economics of education through the work of Victor Lavy in the 1990s and 2000s, who conducted some of the first economic applications of Regression Discontinuity designs, randomized evaluations of education incentives, and quasi-experimental studies of school choice, teacher incentives, school inputs, classroom social networks, teacher behavior, household composition, and peer effects.
• Reduced concentration in the economy through Avi Ben-Bassat in the late 1990s and 2000s, who served on a series of committees that separated real corporations from the ownership of banks, and enhanced competition in the financial market by splitting provident funds, mutual funds, and credit card companies from their ownership.
• Transformed natural resource taxation in Israel through the work of Eytan Sheshinski, who headed two landmark committees that led to crucial legislation: "Sheshinski 1" in 2010, which reformed taxation of offshore natural gas revenues, and "Sheshinski 2" in 2015, which addressed taxation of Dead Sea minerals, fundamentally changing how Israel manages its natural resource wealth.