Jean Tirole, 2014 Nobel Laureate in Economic Sciences
The 2014 Nobel Prize in Economic Sciences was awarded to Jean Tirole of the Toulouse School of Economics. According to Reuters, the prize recognizes Professor Tirole’s work aimed at “taming” private business firms through governmental regulatory interventions and antitrust law enforcement.
That summary is true as far as it goes. Professor Tirole indeed spent much of his career examining the causes and consequences of industrial structure. He helped pioneer the application of game theory to the field of study known as industrial organization, which tries to answer questions such as “why are some industries populated by a small number of large firms, while others are more atomistic, or “what are the performance consequences (in terms of output, prices and profits) of the different industrial structures we observe in cross-section at a point in time or in particular industries over time?”
Although he contributed many scholarly articles to peer-reviewed academic journals, Professor Tirole is perhaps best known for the textbook he published in 1988, titled The Theory of Industrial Organization (MIT Press). That text focuses almost exclusively on “monopoly” and variants thereof, such as collusive oligopoly and vertically integrated production processes. It goes on to consider the impacts of such market structures on product differentiation, innovation and strategies that incumbent firms might adopt to achieve and maintain their dominant market positions to the disadvantage of consumers.
But like many of his contemporaries, Professor Tirole treats policy interventions “intended” to restrain the exercise of market power and to protect consumers against its abuse as being designed and implemented by benevolent “public servants,” who survey dispassionately a nation’s industrial economy, identify and then surgically excise the tumors of monopoly, all with laser-sharp eyes on enhancing social welfare. To my knowledge, he never considered Chicago-school criticisms of economic regulation (showing that regulatory agencies tend to be “captured” by the very firms they supposedly are meant to regulate in the “public interest”) or public choice theories (and evidence) showing that the enforcement of the antitrust laws is deformed by special-interest-group politics.
Professor Tirole should be credited with appreciating that governmental intervention predictably fails if it follows a one-size-fits-all approach, imposing the same rules on every member of a particular industry or, indeed, an economy as a whole. But his later work on credit “bubbles”, the recent global financial crisis and ongoing slow recovery from it demonstrates a pro-government mindset in that, according to Reuters, he traces current economic woes to “insufficient government regulation.” Again according to Reuters, “Tirole himself was cautious on the economic prospects of his country, where unemployment is stuck at around 10 percent and whose leaders last month broke the latest in a series of promises to bring public lending to within EU limits.”
Perhaps the $1.1 million he will receive for winning the 2014 Nobel Prize will afford Professor Tirole leisure time to read the public choice literature, which ought to disabuse him of his evident faith in the public sector’s public-spiritedness.