Working independently, they have addressed “some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable growth,” the Royal Swedish Academy of Sciences said in a statement.
Nordhaus is a professor at Yale University. Romer is a former World Bank chief economist now at New York University’s Stern School of Business.
The academy said their models, both developed in the 1990s, have “significantly broadened the scope of economic analysis”.
The prize announcement came as the UN warned in a landmark report that an “unprecedented” transformation of society and the world economy was needed to avoid global climate chaos.
It said time was running out to avert disaster, noting that Earth’s surface has warmed one degree Celsius (1.8 degrees Fahrenheit).
Romer told the Swedish academy in a live phone interview at the prize announcement that he was confident the world could reduce greenhouse gas emissions and still improve standards of living in the future.
“We can absolutely make substantial progress to protecting the environment, and without giving up the chance for sustained growth,” he said.
“One of the problems with the current situation is that many people think that dealing with protecting the environment will be so costly and so hard that they will ignore the problem and deny it exists,” he said.
“I hope the prize will help people see humans are capable of amazing accomplishments when we try to do something.”
The jury said that while Nordhaus and Romer “do not deliver conclusive answers … their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth.”
Nordhaus, 77, was specifically honoured for “integrating climate change into long-run macroeconomic analysis.”
Nordhaus’s “integrated assessment model” was created in the 1990s and combines theories and empirical results from physics, chemistry and economics.
It is now widely “used to simulate how the economy and climate co-evolve.”
It is used to examine the consequences of climate policy interventions, for example carbon taxes.
Nordhaus’s research shows that the most efficient remedy for problems caused by greenhouse gas emissions is a global scheme of carbon taxes uniformly imposed on all countries, the jury said.
The 62-year-old Romer meanwhile won the prize for “integrating technological innovations into long-run macroeconomic analysis.”
Romer laid the foundation for “endogenous growth theory”, which explains how ideas are different to other goods and require specific conditions to thrive.
His research demonstrated how economic forces govern the willingness of companies to produce new ideas and innovations.
Romer resigned from the World Bank in January 2018 after raising questions about how the institution was ranking countries.
Both Nordhaus and Romer have been tipped as frontrunners for the Nobel Prize in recent years.
The pair will share the nine million Swedish kronor (about $1.01 million or 860,000-euro) prize.
Last year, the honour went to US economist Richard Thaler, a co-founder of the so-called “nudge” theory.
That theory demonstrates how people can be persuaded to make decisions that leave them healthier and happier.
Unlike the other Nobel prizes which were created in Swedish inventor and philanthropist Alfred Nobel’s will and first awarded in 1901, the economics prize was started by the Swedish central bank in 1968 to mark its tricentenary. It was first awarded in 1969.
The prize, which also consists of a diploma and a gold medal, will be presented at a formal ceremony in Stockholm on December 10.
The economics prize wraps up the 2018 Nobel awards season, notable this year for the lack of a literature prize.
That award was postponed by a year for the first time in 70 years over a rape scandal that came to light as part of the #MeToo movement.
The awards for medicine, physics and chemistry were announced last week as was the most highly-anticipated Nobel, the peace prize.
It went to Yazidi women’s campaigner Nadia Murad and Congolese doctor Denis Mukwege for their work in fighting sexual violence in conflicts around the world. DM
"If you try to predict the future know that you will be wrong. The trick is to be as least wrong as possible; and be ready to change when you see how wrong you are!" ~ Sir Michael Howard