French economist wins Nobel Prize

French economist Jean Tirole poses before a news conference at the Toulouse School of Economics in Toulouse October 13, 2014. French economist Jean Tirole won the 2014 economics Nobel Prize for his analysis of market power and regulation, the Royal Swedish Academy of Sciences said on Monday.

French economist Jean Tirole poses before a news conference at the Toulouse School of Economics in Toulouse October 13, 2014. French economist Jean Tirole won the 2014 economics Nobel Prize for his analysis of market power and regulation, the Royal Swedish Academy of Sciences said on Monday.

Published Oct 13, 2014

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Stockholm - Frenchman Jean Tirole of the University of Toulouse won the 2014 Nobel Prize in Economic Sciences for his work on how governments can better regulate industries that lack competition.

Tirole “has clarified how to understand and regulate industries with a few powerful firms,” the Royal Swedish Academy of Sciences, which selects the winner, said in a statement today in Stockholm.

Tirole, 61, will receive an 8 million-krona (R12.1 million) prize.

Tirole showed that the best regulation was adapted to each industry’s specific conditions and presented a general policy framework that he applied to industries from telecommunications to banking, according to the academy.

“The beauty of Tirole’s work is that he has been able to describe deep and essential differences between various industries,” said Professor Tore Ellingsen of the Royal Swedish Academy of Sciences.

“All industries shouldn’t be treated the same.”

Governments can draw on Tirole’s work to encourage powerful companies to become more productive, while preventing them from harming competitors and customers, the academy said.

His work has “strong bearing on central policy questions: how should the government deal with mergers or cartels, and how should it regulate monopolies?”

 

Light Enough

 

Speaking by telephone to a press briefing in Stockholm, Tirole said regulation “has to be light enough not to kill entrepreneurship” yet a strong government is needed to enforce it.

In an interview later with Bloomberg Television, Tirole said “regulation is not about preventing firms and banks from functioning.

Actually, it’s the reverse. Regulation is about rules of the game and also an independent enforcement of the rules of the game.”

In banking, “we need strong regulations that are going to prevent banks from gambling with taxpayer money -- not only retail banks, but also investment banks. If they’re going to be bailed out, they have to be regulated.”

At today’s press conference, Tirole said “the authorities are putting in place some regulation of liquidity which is a very good thing.”

“Banking is a very hard thing to regulate and we economists, academics have to do more work on this,” he said.

 

Two-Sided Market

 

Tirole said companies like Google work in a “two-sided market,” where they have to attract both advertisers and users of their service.

Such markets have a tendency toward monopolisation, though that is not dangerous if new competitors are able to enter them, he said.

Tirole has had “a big impact on economic research in Europe,” said Philippe Bacchetta, professor of economics at the University of Lausanne, Switzerland, where Tirole once taught.

“He’s been very prolific and wrote numerous works about industrial organisation and the organisation of businesses. But he also worked on how governments behave, markets, the debt crisis, bank regulation etc.”

 

Liquidity Work

 

In 2011, Tirole published the book “Inside and Outside Liquidity” with Finnish economist and Massachusetts Institute of Technology Professor Bengt Holmstrom.

The book focuses on why financial institutions, industrial companies and households hold low-yielding money balances, Treasury bills, and other liquid assets and on how markets can make up for a shortage of liquid assets, according to The MIT Press, which published the book.

“These questions are at the centre of all financial crises, including the current global one,” MIT Press said.

Tirole, 61, first trained to be an engineer in France and went on to get a doctorate in mathematics from the University Paris-Dauphine in 1978 and a second doctorate in economics from the Massachusetts Institute of Technology in 1981.

He holds honorary doctorate degrees at institutions such as the London Business School and the University of Rome Tor Vergata.

The recognition the prize carries has helped previous winners bring their economic theories closer to policy making.

Past laureates include Milton Friedman, James Tobin and Friedrich August von Hayek.

 

Previous Winners

 

Last year’s award went to Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller for their work toward deepening an understanding of how asset prices move.

Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896, and the first prizes were handed out in 1901.

The economics award was set up by Sweden’s central bank in 1968.

Last week, Malala Yousafzai, the Pakistani schoolgirl who was shot by the Taliban, and India’s Kailash Satyarthi were awarded the Nobel Peace Prize for their advocacy of children’s rights.

French author Patrick Modiano won the literature prize.

Eric Betzig, Stefan W. Hell and William E. Moerner were awarded the Nobel in chemistry.

Isamu Akasaki, Hiroshi Amano and Shuji Nakamura won the physics prize.

John O’Keefe, May-Britt Moser and Edvard I. Moser received the medicine prize. - Bloomberg News

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