Innovation French economist wins Nobel Prize in Economic Sciences
By Michael Hennigan, Finfacts founder and editor
Oct 13, 2014 - 3:49 PM
Jean Tirole, Nobelprize.org. Nobel Media AB 2014. 13 Oct 2014.
The Royal Swedish Academy of Sciences in Sweden announced today the award of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2014 to Jean Tirole of Toulouse 1 Capitole University, France “for his analysis of market power and regulation.”
The prize is of recent origin and in 1968, Sveriges Riksbank (Sweden's central bank) established this Prize in memory of Alfred Nobel, founder of the Nobel Prize. Here are some facts and figures regarding The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, awarded from 1969 to 2014.
On 27 November 1895, Alfred Nobel, the Swedish industrialist, signed his last will and testament, giving the largest share of his fortune to a series of prizes in Physics, Chemistry, Physiology or Medicine, Literature and Peace - the Nobel Prizes.
Between 1901 and 2014, the Nobel Prizes and the Prize in Economic Sciences were awarded 567 times.
The academy said on the science of taming powerful firms
Jean Tirole is one of the most influential economists of our time. He has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms.
Many industries are dominated by a small number of large firms or a single monopoly. Left unregulated, such markets often produce socially undesirable results – prices higher than those motivated by costs, or unproductive firms that survive by blocking the entry of new and more productive ones.
From the mid-1980s and onwards, Jean Tirole has breathed new life into research on such market failures. His analysis of firms with market power provides a unified theory with a strong bearing on central policy questions: how should the government deal with mergers or cartels, and how should it regulate monopolies?
Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules, such as capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions in the value chain. Tirole showed theoretically that such rules may work well in certain conditions, but do more harm than good in others. Price caps can provide dominant firms with strong motives to reduce costs – a good thing for society – but may also permit excessive profits – a bad thing for society. Cooperation on price setting within a market is usually harmful, but cooperation regarding patent pools can benefit everyone. The merger of a firm and its supplier may encourage innovation, but may also distort competition.
The best regulation or competition policy should therefore be carefully adapted to every industry’s specific conditions. In a series of articles and books, Jean Tirole has presented a general framework for designing such policies and applied it to a number of industries, ranging from telecommunications to banking. Drawing on these new insights, governments can better encourage powerful firms to become more productive and, at the same time, prevent them from harming competitors and customers.
"You know, it’s also being with the right people, in the right place, at the right moment."
Telephone interview with Jean Tirole following the announcement of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2014, 13 October 2014. The interviewer is Adam Smith, Chief Scientific Officer of Nobel Media.
[Jean Tirole] Hello.
[Adam Smith] Yes, hello. My name is Adam Smith calling from the website of the Nobel Prize, Nobelprize.org.
[AS] Congratulations first of all on the award.
[JT] Oh thank you.
[AS] How did you receive the news?
[JT] Well, I was called by the Swedish Academy, and I was very surprised. I was incredibly surprised at the honour and it took me half an hour to recoup from the call. I still haven't recouped yet, but I immediately thought to all those who helped me, you know, with my career, and my family of course, and also my colleagues and students who have played a big role in my career. And in particular the person who started here in Toulouse, the Centre in Toulouse, Jean-Jacques Laffont who passed away and probably would have been, would have deserved to be with me today in this Prize for regulation and competition policy.
[AS] Yes, you worked together very closely but he died ten years ago, is that right?
[JT] He died ten years ago from a cancer and he was my mentor and also a dear friend, yes.
[AS] Nice to remember him today then. You're the first French economist to be awarded the Prize since Maurice Allais, over a quarter of a century ago. You must be very proud.
[JT] Well, I'm very proud, this is true, I mean. But, you know, it's also being with the right people, in the right place, at the right moment. And, you know, it's a team work too. It's true Maurice Allais got the prize I think in 1978 or '77 and he was a great mind, and it is very, yeah it's very impressive for me.
[AS] And I suppose the timing could be interesting because, I mean, more and more governments are opening up their public monopolies to private stakeholders these days so your work is more and more relevant year by year I suppose.
[JT] Well that has been a trend and we have been working with Jean-Jacques Laffont and my other co-authors to try to understand what regulation should look like in such industries. So, you know, opening access to entrants in a way that is going to keep the infrastructure built. That's actually a difficult task. But it's true that we need competition. That competition doesn't come about easily in such industries by definition, so that's why you need an academic framework to analyse this.
[AS] Who was the first person you told after you heard the news?
[JT] Well, I told my wife, and I told my mother too, and ...
[AS] What did she say?
[JT] Oh, I first, to be honest, she is 90 years old and I first ask her to sit before I told her of the news. [Laughs] So, but yes, she was, my mother used to be a teacher, French and Latin and Greek teacher. You know, knowledge is very important to her, very important. And of course, for my wife and my children also. I see one of my daughters is on Skype with me from London and in fact it is actually quite moving for the whole family of course.
[AS] Yes, indeed, probably the whole world are trying to get hold of you now so I should leave you to their attentions. But for now our congratulations and we look forward to welcoming you to Stockholm.
[JT] OK, thank you, bye bye.
[AS] Bye bye.
After the announcement, Tore Ellingsen, Chairman of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel, was interviewed by freelance journalist Henrik Höjer about the 2014 Prize in Economic Sciences.