Jean Tirole: Why the Economics Nobel prize winner's research is important for ...
And this year's Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel goes to Jean Tirole for his work on market power and regulation...'
It's an award from the Royal Swedish Academy of Sciences to a person with a French name with Hebrew origin for his work that many would tend to presuppose is Greek. The presumption that the Nobel memorial prize for economic sciences tends to be awarded for esoteric research isn't misplaced.
After all, winners in the past have taken home the award for works like 'intertemporal tradeoffs in macroeconomic policy' (2006) or 'analyzing economic time series with timevarying volatility' (2003), which don't quite qualify as accessible or perspicuous.
Against that backdrop, Jean Tirole of Toulouse University in France being awarded for his research on regulating large firms that display monopolistic tendencies is immensely more palatable, even for those without an economics major. Here is someone who has won the award for research on a subject that in essence protects consumers.
For policymakers all over the world, the French researcher's work is significant. Indeed, for Indian public policy, this year's award is relevant like it has not been for many years. 'The nature of scams that have come to the fore recently in India is a reflection of the lack of a regulatory framework.
Tirole's work shows that not only is regulation vital for the growth of healthy capitalism and an entrepreneurial society but is also needed for curtailing crony capitalism,' says Anil K Gupta, a professor at IIM Ahmedabad.
Although 'theoretical', Tirole's work has far-reaching implications in our everyday lives. Over the past three decades, he has carried out seminal work on regulations to handle monopolies and more importantly 'oligopolies', sectors which are dominated by a 'few powerful firms'.
His work delves deep into answering some fundamental questions faced by every government. How should governments deal with mergers or cartels, and how should they regulate key sectors dominated by a handful of firms.
Innovation vs Distortion
He showed that the conventional wisdom of capping prices in monopolies and regulating oligopolies works well only in certain conditions, but in others it can be counter-productive. 'Price caps can provide dominant firms with strong motives to reduce costs - a good thing for society - but may also permit excessive profits - a bad thing for society... The merger of a firm and its supplier may encourage innovation, but may also distort competition,' is how the Academy explains his work.
India has come a long way since 1991- when the licence raj was the norm and private capital was restricted. Gradually, as the economy was opened up for private ventures, a number of independent regulators were set up by the government.
Now, most of the sectors - banking, the securities market and exchanges, telecom, insurance, electricity, petroleum and natural gas - are being supervised by these regulators. There are others in the pipeline, such as a Civil Aviation Authority.
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