Wednesday 15 October 2014

How Frenchman's Nobel research could aid consumers

The Associated Press

  • Fred Scheiber - AP Photo
    French economist and Nobel Prize laureate Jean Tirole addresses the media during a press conference at the Toulouse School of Economics in Toulouse, southern France, Monday, Oct. 13, 2014. Tirole won the Nobel prize for economics

STOCKHOLM U.S. consumers might be paying less than they are for cable and Internet access if regulators had followed the guidance of Jean Tirole in promoting industry competition.
So say experts in assessing the work of Tirole, a 61-year-old Frenchmen who won the Nobel prize in economics Monday for showing how to encourage better products and competitive prices in industries dominated by a few companies.
"He has given us an instruction manual for what tool to use in what market," said Torsten Persson of the prize committee. "Politicians would be stupid not to take his policy advice."
They haven't always listened.
Joshua Gans, management professor at the University of Toronto, says U.S. regulators didn't follow Tirole's advice to require cable and phone companies to sell competitors access to "the last mile" of cable connecting homes to telecommunications networks. Instead, giants such as Comcast and Time Warner now control the last mile.
To reach a home, a potential competitor must pay to install its own cable. That limits competition and allows existing telecom providers to charge more. As a result, Gans says, American consumers pay too much for cable TV and Internet access.
Tirole, a professor at the Toulouse School of Economics in France who earned a doctorate from Massachusetts Institute of Technology, is the third Frenchman to win the $1.1 million Nobel Memorial Prize in Economic Sciences, which has been dominated of late by U.S. economists. This is the first year since 1999 that an American has not been among the winners.
"I was incredibly surprised at the honor, and it took me half an hour to recoup" from the Nobel committee's call, Tirole said in an interview with the website
Tirole did much of his work with his Toulouse School colleague Jean-Jacques Laffont, who died in 2004. Had he lived, Laffont "would have certainly shared" the prize with Tirole, says David Warsh, who follows academic economists on his Economic Principals blog.
Tirole cannot be easily categorized as pro- or anti-regulation. He agrees with free-market advocates that "because firms know more than regulators, regulation is necessarily going to be imperfect," said Eric Maskin, a Harvard University economist who taught Tirole at MIT and who won a Nobel prize himself in 2007. "But that doesn't mean there shouldn't be regulation. You have to be very careful so you don't do more harm than good."
At a news conference Monday, Tirole said, "The market needs a strong state to function normally."
Left unregulated, companies with few competitors can stop innovating and charge unnecessarily high prices. But attempts to regulate them often fail. Companies typically grow close to the government agencies that are supposed to supervise them and find ways to exploit regulations to block competitors.
Studying specific industries, including telecommunications and finance, Tirole devised rules meant to align companies' interests with those of consumers, thereby nudging producers to provide better products and lower prices.
Tirole is the second French economist to make headlines this year. Thomas Piketty gained global fame with his best-seller, "Capital in the 21st Century," in which he used 300 years of data to document a widening gap between rich and poor. Piketty's book was based on research he conducted with his countryman Emmanuel Saez.
This year's economics prize was the second Nobel to be won by Frenchmen this year, after the literature prize awarded last week to Patrick Modiano.
"After Patrick Modiano, another Frenchman in the firmament. Congratulations to Jean Tirole. A thumb in the eye for french bashing," French Prime Minister Manuel Valls tweeted.
The announcement also set off celebrations across the Atlantic at MIT, where Tirole earned his doctorate in 1981 and is still a visiting professor who typically comes to campus three times a year.
"I'm thrilled for Jean," said Nancy Rose, an MIT professor who has known Tirole for more than three decades. "This is a prize I think we were confident would come."
"He's extremely generous. He's unselfish," added MIT economist Bengt Holmstrom. "He's always looking at ways to better government."
Monday's prize completes the 2014 Nobel Prize announcements. The Nobel prizes for peace, literature, chemistry, physics and medicine were awarded last week.
The awards will be presented on Dec. 10, the anniversary of prize founder Alfred Nobel's death in 1896.
Though the economics award isn't an original Nobel — it was added in 1968 by Sweden's central bank — it is presented with the others and carries the same prize money.
Wiseman reported from Washington, Ritter from Stockholm. Nathalie Rothschild in Stockholm, Lori Hinnant in Paris and Mark Pratt in Boston contributed to this report.

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