The 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel goes to Jean Tirole, a French economist, for his work studying industries dominated by a few large, powerful firms.
“The prize is about market power and regulation,” said Tore Ellingsen, chair of the prize committee, in a video interview after the announcement in Stockholm today. “What sort of regulations and competition policy do you want in place so that large and mighty firms will act in society's best interest?”
Until the 1980s, regulation researchers sought simple rules that could apply to every industry and dealt essentially with two extreme situations: single monopolies or perfect competition. On the contrary, Tirole's research focuses on oligopolies—markets that are dominated by a few companies—and embraces their complexity and peculiarities, says Reinhilde Veugelers, an economics professor at the University of Leuven in Belgium and senior fellow at the Bruegel think tank in Brussels. He also provided tools to deal with so-called asymmetric information, when public authorities have less information than the firms they are trying to regulate.
Although his work is theoretical, Tirole doesn't shy away from providing practical policy recommendations, and his work still resonates with current debates about competition policies and the regulation of telecoms, banking, or energy markets, Veugelers tells ScienceInsider. “Some of Jean Tirole's proposals, in particular in the field of banking regulation, might help reduce the probability that such crises occur again in the financial sector,” Ellingsen said, adding however that today's award is “not really a political prize.” Observers agree that Tirole himself is hard to place on the political spectrum. “Like an engineer, he offers a toolkit for problem-solving that is applicable no matter your political preference,” Ellingsen said.
According to Tyler Cowen, an economics professor at George Mason University in Fairfax, Virginia, the prize rewards “theory” and “rigor.” Tirole follows the tradition of French 19th century theorists: “economics coming from a perspective with lots of math and maybe even some engineering,” Cowen wrote on his blog Marginal Revolution today. Tirole has two engineering degrees from some of France's top schools, as well as two doctoral degrees from the Université Paris IX-Dauphine and the Massachusetts Institute of Technology (MIT), where he worked from 1984 to 1992. He is currently scientific director at the Industrial Economic Institute at the Toulouse School of Economics in France and still works as a visiting professor at MIT.
Tirole has displayed broad interests, publishing books, essays, and op-eds on subjects ranging from France's health insurance policies to Europe's currency crisis. Some of Tirole's research also focused on patent policies, research, and innovation. For example, one of his theories—drawn with Josh Lerner—seeks to explain why programmers develop open source software even though it doesn't earn them any money: Contributing to open source software “signals” ability and expertise, which can in turn increase their professional prospects.
Today, the prize committee also mentioned the contribution of Tirole's colleague Jean-Jacques Laffont, who died in 2004. In an online statement, Tirole praised Laffont as “a mentor”: “I am more than aware of the key role he played in what is happening to me today,” the laureate said.