French economist Jean Tirole has won the Sveriges Riksbank Prize in Economic Sciences, the Nobel Committee announced Monday. The 61-year-old economist is currently a professor at Toulouse University in France and has been considered in the running for the prize for years. Now that he has finally won it, here is a quick guide to who he is and what he studied.
Who is Jean Tirole?
He's not as well-known to the American public as some past laureates such as Paul Krugman or Joseph Stiglitz, but within the profession Tirole is one of the world's most respected and accomplished economists and his name has been in the mix for the prize for years. In addition to a Ph.D. in economics from MIT, he also has degrees in engineering and mathematics. He's also one of the most cited economists in the world — No. 11, to be exact, according to one ranking operated by the Federal Reserve Bank of St. Louis.
Why did he win the Nobel?
Tirole won the award for his body of work in "market power and regulation," according to the Nobel Committee — work he began in the 1980s and has continued it since.
Tirole's work helps better the world, said Tore Ellingsen, chair of the committee that awards the economics prize, after the announcement, because it helps governments better be able to set regulations "so that large and mighty firms will act in society's best interest."
"We are affected by big firms all of the time," he said, pointing to the electrical, transportation, and telecommunication industries. "The quality of those services and the price that we pay matters to all of us."
This strand of Tirole's work regards how to regulate oligopolies (industries that are dominated by a few large firms) and monopolies. Often these are utilities or formerly publicly run industries, like railroads or electricity. Oligopolies are common, but they often weren't well-covered in basic economic theory, as the New York Times' Binyamin Appelbaum writes, which often assumes perfect competition in markets.
In addition, how regulators should handle these situations wasn't understood in a very nuanced way. One of Tirole's main focuses in this area was on "asymmetric information" — the fact that governments usually don't know as much about an industry as the firms in that industry know, making regulation difficult. In one of Tirole's better-known works, Competition in Telecommunications (which he co-authored with Jean-Jacques Laffont), he delves into what makes that industry unique and how different nations have regulated an industry that is often a monopoly or oligopoly.
Tirole's overall ideas on regulation are difficult to summarize because his work emphasizes that different industries need to be treated differently. Newspapers, for example, are one area the Nobel Committee points to that illustrates this. They often give information away at a discount as a loss-leader to gain market share and increase advertising revenue. While a government might consider that illegal "predatory pricing" in some other context, such an approach doesn't make sense in a press context.
Fitting his emphasis on industry-specific regulatory solutions, Tirole is also a leading figure in the field of industrial organization. That's the study of how an industry is organized, given the companies involved in it, the basis of their competition with each other, and the degree to which government intervenes. His textbook on the subject is still taught today. It brought the ideas of game theory (an approach to the formal study of decision-making) into the realm of industrial organization and helped explain why different firms make the decisions they do, given different market structures — a firm will act differently in a monopoly than in a perfectly competitive market, for example.
Tirole co-authored much of his work with Laffont, who is heavily referenced in the Nobel Committee's examinations of Tirole's work. Laffont died in 2004, but the mentions might signal that the committee would have given the prize to Tirole and Laffont together if Laffont were still alive or were posthumous awards permitted.
Why does Tirole's work matter?
Tirole's work touched on a range of issues that come up in our daily lives, or at least our daily news. Stand in a long line at your local Comcast office and it's easy to complain about the company being monopolistic. The idea of regulatory capture — recently brought to the fore in a This American Life episode on the New York Fed — is also integrated into Tirole's analysis of monopoly.
Outside the linked areas of competition regulation and industrial organization, Tirole also studied a number of other areas of interest. His 1994 book on banking regulation, for example, focused on capital requirements as an integral part of stopping financial crises. His interests even extended to open-source software, with a line of research suggesting that contributions to open-source projects are an economically rational way for programmers to signal their skills.
Tirole's efforts to link theoretical issues to questions of market structure make his models notable for their realism.
"I think that some of Jean Tirole's proposals in particular in the field of banking regulation might help to reduce the probability that such a crisis will occur again in the financial sector," said Ellingsen in an interview shortly after the prize was announced.
Is this a political prize?
No. At least, that was Ellingsen's official response in that interview. But you could be forgiven for thinking so — the questions of how best to regulate banks and telecommunications firms are still major policy issues.
- The Nobel Committee's "popular science background" paper on Tirole. A slightly longer overview of Tirole's work.
- The Nobel Committee's "scientific background" paper on Tirole. A much longer, more in-depth look at Tirole's research.
- Tirole's work, as examined by another economist. At his blog Marginal Revolution, George Mason University economist Tyler Cowen has put together a series of posts on some of the highlights of Tirole's research.