Monday, October 13, 2014

Economic “Nobel Prize” 2014: Jean Tirole received the highest honor – Neue Zürcher Zeitung

Economic "Nobel Prize" 2014: Jean Tirole received the highest honor – Neue Zürcher Zeitung

The Royal Academy of Sciences distinguished Frenchman Jean Tirole of the “business award the Bank of Sweden in memory of Alfred Nobel”. The engineer and mathematician who earned his doctorate in 1981 at MIT in Cambridge in macroeconomics, is scientific director at the Institute for Industrial Economics at the Université Toulouse. With the analysis of oligopolistic markets and their regulation, the 61-year-old has been earned as the sole winners. Given the privatization and deregulation wave in recent decades (eg in the telecommunications and electricity sectors) and the regulatory issues in the banking and healthcare industries is Tiroles research to date.

As it to deal with early eighties with regulatory issues began the research had been looking especially for opportunities to engage as public authorities in monopoly situations and with perfect competition. Price caps for monopolists as well as prohibitions on cooperation between competitors were considered the best solutions. The Frenchman proved thanks to the then new methods such as the play and the principal-agent theory, that such regulations often harm more than availed. Thus, price caps may encourage certain companies to increase productivity, while allowing other excessive prices and thus guaranteed profits. Tirole showed that the oriented regulations for monopolies oligopolies do not work. He also recognized the problem of asymmetric information by companies and regulators, which latter leave at a disadvantage.

Together with his late colleague Jean-Jacques Laffont, he wrote a number of important publications. The two suggested that regulators give a monopoly over its cost situation and production method they are not fully informed, various possible contracts to choose from. This will select the company that treaty, which is costly for them and award moderately ideal and at the same time for the best state. Their research they took in 1993 in the book “A Theory of Incentives in Procurement and regulations” together, which was of great importance for public procurement and regulations. Laffont and Tirole also dealt with the problem that authorities often know more than the State and can be an advocate of the operation to be regulated. The key lies in a framework that factored this potential fraternization.

A Summary of Research Tiroles is that there are no standard solutions for the competition legislation. What is an appropriate measure for a sector that may turn out to be negative in another. Therefore, competition authorities have to deal with the peculiarities of the industry. Price dumping often bans are enacted to prevent the displacement of competitors. That bans are not always the right means Tirole shows the example of free newspapers: These steal the traditional newspapers Although readers, but also attract more advertisers, which cover the losses of production and distribution. Similar markets that have a strong relationship between stakeholders on both sides of a technical platform, are credit cards, search engines and social media.

The Science Academy praises Tirole for his careful studies, the respect for the idiosyncrasies of different markets and the skillful application of new scientific methods. By putting an emphasis on the formulation of normative theories of regulation and competition law, his work is of great practical importance.


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