Tuesday, October 14, 2014

Jean Tirole and a better regulated planet

Jean Tirole deserves the Nobel Prize. He has written articles over the past 30 years on a great variey of topics, most of them on applied microeconomic theory. Many of us should thank him for collecting the research in his articles and summarizing it in a number of thick books on game theory, industrial organization, regulation and corporate finance. Tirole means clarity: he writes concisely and effectively, and he is able to explain complex topics, theorems and proofs with the simplest possible language. His book with the late Jean-Jacques Laffont on regulation is now 20 years old, but must still be read by anyone who wants to know the basic problems of regulation and liberalization: asymmetic information, capture, commitment and market power. He has produced multi-disciplinary work at the highest level. For example, half of the book on regulation with Laffont is about the politics of regulation. And he has a fertile line of work with Benabou on psychology and economics. He has also recent work on climate change and institutional issues in the euro zone that perhaps suggests a future book on regulation and international federalism. His institutional work as leader of the Toulouse School of Economics shows the fruits of the collaboration at the highest level between the USA and Europe. As with many good economists, some people will now rush to extract short run lessons from the work of this newly famous economist for the great public. Please handle this with care. Spanish journalists for example have been unable to translate correctly "market power" for the last 24 hours since Tirole was announced as the Nobel Prize winner. There aren't many immediate lessons. Tirole gives lots of insights for example about how real regulation works, but most of his advice is on constitutional rules, and when practitioners arrive to a new office, the rules are usually already in place. Since the global rules for issues like climate change and financial instability do not exist yet, perhaps, if read carefully, some useful lessons can be applied to the institutional architecture of a better regulated planet.

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