The University of Pennsylvania has traditionally been at the forefront of economics, and the Institute was established to enhance this leadership role. It was established in 1993 thanks to a generous gift from William P. Carey.

The first Director of the Institute was Professor Lawrence R. Klein, a Nobel Laureate, whose work provided the foundation for econometric forecasting and is now used as a basic tool by government and industry. According to Professor Klein's Nobel citation, "Few, if any researchers in the empirical field of economic science have had so many successors and such a large impact as Lawrence Klein." Although formally retired, Professor Klein carries on an active research agenda within the Institute and gives generously of his time and expertise.

Following Professor Klein's retirement, between July 1995 and June 2000 the Institute was directed by Professor Kenenth I. Wolpin. Professor Wolpin is a pioneer in the development of new empirical methods and theoritical models for the study of labor markets, investments in human capital, and social policy. His work exemplifies the rigorous combination of theory, econometrics, and data that characterizes research at Penn.

From July 2000 through July 2011, Antonio Merlo, the Lawrence R. Klein Professor of Economics, directed the Institute. The primary focus of Professor Merlo's research is in the area of Political Economy. He has published numerous articles in the leading journals in the profession, including the American Economic Review, Econometrica, the Journal of Political Economy, and the Journal of Economic Theory.