Tag: Nobel Prize

On A Tirole

John Cassidy explains the significance of Tirole’s work:

Taking tools of game theory and information economics developed in the postwar decades, he and his colleagues helped to change the way governments and economists think about an old subject that is becoming ever more important to our networked economy: the regulation of companies with monopoly power.

From Amazon’s battle with book publishers to Cablevision’s attempted takeover of Time Warner Cable and the European Commission’s investigation of Google, the issue of how to deal with companies that operate in markets where competition is restricted or absent has become front-page news around the world. Tirole and his colleagues, particularly the late Jean-Jacques Laffont, didn’t establish a set of hard-and-fast rules for governments to follow in individual cases. But they did create a unifying intellectual framework that regulators, aggrieved parties, and the companies themselves can draw on in thinking through the relevant issues.

Tyler Cowen calls it “an excellent and well-deserved pick”:

Overall I think of Tirole as in the tradition of French theorists starting with Cournot in 1838 (!) and Jules Dupuit in the 1840s, economics coming from a perspective with lots of math and maybe even some engineering.  I don’t know anything specific about his politics, but to my eye he reads very much like a French technocrat in terms of approach and orientation.

Justin Wolfers details how the “conclusions of Mr. Tirole’s style of analysis defy easy political characterization”:

In some cases they may call for a more vigorous regulatory response from government policy makers than is currently the norm, while in others, they call for greater restraint. In each case, the recommended policy depends on the details of the particular market, and in particular on what information is available; what contracts can be written; and how competitors, suppliers and customers are likely to respond.

In turn, this shows just how much Mr. Tirole’s work is a sophisticated mash-up of the three recent Nobel-winning themes that have revolutionized microeconomic theory. His research extends and applies the tools of game theory, which is used to analyze strategic interactions between firms and their competitors, suppliers, customers and regulators. It takes seriously the problem of imperfect information, analyzing how these interactions are shaped by what each of these players knows about the others. And he has been a pioneer within contract theory, assessing the consequences of the difficulty of writing contracts that fully specify the consequences of commercial transactions. This prize represents a vote of confidence in the direction of modern microeconomic theory.

Matt Yglesias highlights Tirole’s work on competition:

… I think many people will be most interested in his 2002 paper “Platform Competition in Two-Sided Markets,” co-authored with Jean-Charles Rochet. Among other things, the paper offers a powerful explanation of why so many leading internet companies — most prominently Google and Facebook — don’t charge for their products. In the most simplified thinking about business, a company has suppliers and then it has customers. But a platform market is two-sided. Apple sells iPhones to customers, but it also collects 30 percent of the gross sale price of apps in the app store. …

[W]hile it costs a lot of money to run Facebook it costs very little money to serve one more Facebook customer. The same is true for Google. Indexing the web is expensive. Paying engineers to work on the search algorithm is expensive. But serving one additional customer costs basically nothing.

Jordan Weissmann praises Tirole for his prescience:

Even in papers published decades ago, the subjects of his work feel ripped from today’s headlines—he was writing about the threat of too-big-to-fail banks and the hazards of bailouts all the way back in 1996. Want to talk about how to prevent another financial crisis, deal with Comcast, or think about the meaning of a monopoly in the era of free Internet services such as Google and Facebook? Triole’s your man, and has been for a long time. Yet he’s not a name you’re likely to see all the time in the New York Times or Wall Street Journal.

“Many of his papers show ‘it’s complicated,’ rather than presenting easily summarizable, intuitive solutions which make for good blog posts,” economist Tyler Cowen wrote in a summary of Tirole’s work. “That is one reason why his ideas do not show up so often in blogs and the popular press, but they nonetheless have been extremely influential in the economics profession.”

And David Spencer, who notes that he “do[es] not intend to criticise directly the award of this year’s prize to Jean Tirole,” uses the award as a starting point for a broader argument:

Academic economics is still stuck in an intellectual and ideological rut. Despite the global financial crisis – the worst in a lifetime – academic economists are more likely to win awards and the respect of their peers by producing abstruse models than by tackling and resolving real-world problems. The economics Nobel awards advances in economic analysis – meaning the development of formal models and the application of particular mathematical and statistical techniques. In essence, solving puzzles within economics matters more than dealing with grand societal challenges.

Thomas Piketty, who has done more than anyone else in the last year to bring academic economics to the public attention, had no real prospect of winning the prize, given his concern with the real-world issue of inequality. The non-award of the prize to Tony Atkinson – pioneer of inequality and poverty studies – can also be explained in the same way. But it should be a cause of concern, not least for members of the public tuning in to learn who has won the economics Nobel, that acute economic and social issues are not high on the agenda of academic economics.

Nobel Intentions

Joshua Keating thinks a certain peace prize needs a year off:

This year the [Nobel] prize committee could best serve its mission by giving the prize to the person who most deserves it: nobody. Such a move would highlight that this has been a particularly violent year around the world. More importantly, it would serve as an Dr. Francis Crick's Nobel Prize Medal on Heritage Auctions acknowledgment that the most notable eruptions of violence have been so grimly predictable, the result of years of individual and collective failures by governments and international institutions. … [I]t’s hard to find anyone deserving of a Peace Prize in 2014. The original purpose of the Nobel Peace Prize was to reward the person who “shall have done the most or the best work for fraternity between nations, the abolition or reduction of standing armies and for the holding and promotion of peace congresses.” And on that score, there was not much to report this year. The committee should follow the example of the Mo Ibrahim Prize for Achievement in African Leadership, the world’s most generous prize given to individuals, with an outlay of $5 million over 10 years plus $200,000 per annum after that. The prize has simply not been granted in three of the six years it has existed because no suitable candidates were found.

Noah Smith argues that the entire Nobel system is seriously flawed:

In addition to giving too much credit to too few people, the Nobels have the disadvantage of not being given postmortem. This means that great scientists from ages past, who were probably prevented from receiving the prize only because of sexism or racism, will remain Nobel-less forever. Examples include nuclear physicist Lise Meitner, mathematician Emmy Noether (whose work was hugely important to theoretical physics), and nuclear physicist Chien-Shiung Wu. Speaking of discrimination, another problem with the Nobels is that they are awarded almost exclusively by Swedish and Norwegian people. Just look at the committee that selects the physics prize. In the era when Europe ruled the world, the neutral countries of Scandinavia might have seemed like the ultimate honest brokers, but in today’s globalized world there is no good justification for such provinciality.

But Emily Badger notes one of the awards that went to a project with noble applications:

The Nobel Prize for physiology or medicine was given Monday morning to three scientists who’ve uncovered the “inner GPS” in our brains that helps us find our way through the world around us, identifying where we are, where we’ve been and how to get back there again. … The answers have some direct implications for how we understand diseases like Alzheimer’s that rob people of their spatial memory. But they also have some fascinating implications for perfectly healthy people, too, and for the way we design spaces — from individual buildings to neighborhoods and whole transportation networks — that we move through daily. While the first story is clearly the province of scientists and doctors, the second is very much of interest to urban planners, architects and cartographers.

And as Rachel Feltman points out, the physics Nobel went “to researchers whose findings you probably rely on just about every day (or, if you’re like me, just about every minute). The blue light-emitting diodes they helped create are taking over lightbulbs as we know them, but already see universal use in smartphone flashlights and displays.” Update from a reader:

Perhaps this year would be a good year for the Nobel Committee to not just refuse to award a new prize but to rescind the Nobel Peace Prize awarded to Barak Obama in 2009. I understand that there are several online petitions circulating urging the Nobel Committee to do just that.