Skip to main content

Nobel Prize in Economics

Picture of Jean Tirole

The Nobel in Economics this year went to the dapper Frenchman pictured here, Jean Tirole, a member of the Toulouse School of Economics, and with the Institut d'Economie Industrielle (IDEI). In fact, he chairs the board of directors of IDEI.

Nonetheless, if you are an Anglophone, even if you are reasonably well informed about contemporary academic economics, the odds are good you've never heard of him.

Which is just as well. The selection of a more widely-known figure, Krugman, Kahneman, Mundell, to take recent examples, doesn't really teach us anything. The selection of Tirole naturally leads some of us to wonder why, and so to teach ourselves something. In that teaching-moment respect, the choice is akin to that of Elinor Ostrom a few years back.

Tyler Cowen got the goods, collecting a lot of material about Tirole quickly and effectively on his blog on the morning of the announcement.

About a third of third of the way down Cowen's blog piece, this caught my eye, "He has written some key papers on financial intermediation, collateral, and the agency problems associated with lending." As you might gather from that, he is an analytic numbers-crunching kind of economist, not one of the ideological warriors in the field.

Cowen also links us to a paper Tirole co-authored back in 1997 on financial intermediation. The short version: they worked out a model of intermediation that makes predictions about the consequences of collateral squeezes, a credit crunch, or a savings squeeze.

Through the website that the Royal Swedish Academy of Sciences devotes to these awards you can get a detailed 54-page discussion of the bases for honoring Tirole. You get to those financial intermediaries at the bottom of page 36. By page 39 the authors are describing the "Holmstrom-Tirole model" outlined in that '97 paper as "a workhorse for analyzing issues in financial intermediation as well as corporate finance."

Operating firms, the "real economy" widget manufacturers of the world, can ensure their liquidity in the event of a future crisis by hoarding lots of funds. But, as Holmstrom and Tirole understood, there are inefficiencies inherent in such hoarding. It is much more efficient to have a credit line with a bank. Thus, the buffering role of intermediation.  Yet there must be enough liquidity in the intermediates. Thus, H&T argue, there is a positive role for the public sector, for government Treasuries and central banks.

Tirole has also written about asset-price bubbles: about when they are impossible and under what circumstances they are not only possible but rational and socially useful.

Further (again quoting to document from the Swedish Academy, he has "combined his early work on bubbles with his more recent work on financial regulation...."


Popular posts from this blog

England as a Raft?

In a lecture delivered in 1880, William James asked rhetorically, "Would England ... be the drifting raft she is now in European affairs if a Frederic the Great had inherited her throne instead of a Victoria, and if Messrs Bentham, Mill, Cobden, and Bright had all been born in Prussia?"

Beneath that, in a collection of such lectures later published under James' direction, was placed the footnote, "The reader will remember when this was written."

The suggestion of the bit about Bentham, Mill, etc. is that the utilitarians as a school helped render England ineffective as a European power, a drifting raft.

The footnote was added in 1897. So either James is suggesting that the baleful influence of Bentham, Mill etc wore off in the meantime or that he had over-estimated it.

Let's unpack this a bit.  What was happening in the period before 1880 that made England seem a drifting raft in European affairs, to a friendly though foreign observer (to the older brother…

Cancer Breakthrough

Hopeful news in recent days about an old and dear desideratum: a cure for cancer. Or at least for a cancer, and a nasty one at that.

The news comes about because investors in GlaxoSmithKline are greedy for profits, and has already inspired a bit of deregulation to boot. 

The FDA has paved the road for a speedy review of a new BCMA drug for multiple myeloma, essentially cancer of the bone marrow. This means that the US govt has removed some of the hurdles that would otherwise (by decision of the same govt) face a company trying to proceed with these trials expeditiously. 

This has been done because the Phase I clinical trial results have been very promising. The report I've seen indicates that details of these results will be shared with the world on Dec. 11 at the annual meeting of the American Society of Hematology. 

The European Medicines Agency has also given priority treatment to the drug in question. 

GSK's website identifies the drug at issue as "GSK2857916," althou…

Francesco Orsi

I thought briefly that I had found a contemporary philosopher whose views on ethics and meta-ethics checked all four key boxes. An ally all down the line.

The four, as regular readers of this blog may remember, are: cognitivism, intuitionism, consequentialism, pluralism. These represent the views that, respectively: some ethical judgments constitute knowledge; one important source for this knowledge consists of quasi-sensory non-inferential primary recognitions ("intuitions"); the right is logically dependent upon the good; and there exists an irreducible plurality of good.

Francesco Orsi seemed to believe all of these propositions. Here's his website and a link to one relevant paper:

What was better: Orsi is a young man. Born in 1980. A damned child! Has no memories of the age of disco!

So I emailed him asking if I was right that he believed all of those things. His answer: three out of …