I'm not thrilled with this year's selection to win the Nobel Prize in economics. People who know me and know my work will not be surprised by this. Despite Tyler Cowen's thorough and positive assessment of the work of the 2014 prize winner's contributions to the field, I took a dimmer view.
Most simply put, I saw much of Tirole's work as the use of high-powered pyrotechniques to justify gubmnt intervention by elitist interventionists.
I tend, most likely because of my own priors, to favour Bill Shughart's assessment of Tirole's work:
[L]ike 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.”
To be fair, Tirole has applied mathematical game theory and analysis of the principal-agent problem to public choice theory as well as to industrial organization. And I presume he has done so admirably.
But at the same time, Tirole's work seems to show a lack of concern for what Hayek termed "The Fatal Conceit":
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
F.A. Hayek, The Fatal Conceit
Update: I may have overreached, likely because of the misuse of Tirole's results by too many people (including the Nobel committee in Sweden). See this piece by former student, David Henderson. The concluding three paragraphs:
Mr. Tirole also has examined so-called two-sided markets. Consider Google : It can price its services to users (one side) and its services to advertisers (the other side). The higher the price to users, the fewer users and, therefore, the less money Google would make from advertising. Google’s choice is to set a zero price to users and to charge for advertising. In 2006 Mr. Tirole and his Toulouse co-author Jean-Charles Rochet demonstrated that the decision about profit-maximizing pricing is complicated, and they do some heavy math to compute such prices under various theoretical conditions.
But they do not commit the mistake of thinking that regulators are necessarily better than firms in setting prices. Consider the recent issue of interchange fees (IF) in payment-card associations like Visa and MasterCard . Many regulators have advocated government regulation of such fees. But in 2003, Messrs. Rochet and Tirole wrote that “given the [economics] profession’s current state of knowledge, there is no reason to believe that the IFs chosen by an association are systematically too high or too low, as compared with socially optimal levels.” In other words: Back off. Interestingly, the article from which I’m quoting was not among the 159 articles referenced by the Nobel Committee.
If George Stigler were alive today, he would probably recognize, in Jean Tirole, a kindred spirit. In 1950 Stigler advocated breaking up U.S. Steel . In his 1988 memoirs he confessed, “I now marvel at my confidence at that time in discussing the proper way to run a steel company.” Mr. Tirole seems to share Stigler’s humility.
