Economists have studied how markets work for a long time. Generally, they work well. But markets do not always perform as expected. Jean Tirole of France won the Nobel Prize in Economics for studying why markets are imperfect, or inefficient, and what governments can do to regulate them.
The Royal Swedish Academy of Sciences announced the $1.1 million prize in Stockholm on Monday. It called Mr. Tirole “one of the most influential economists of our time.” The organization said he had done important research in a number of areas. But, it said, “most of all he has clarified how to understand and regulate industries with only a few powerful firms.” A small number of companies that control an industry is called an oligopoly.
For about 30 years, Mr. Tirole has researched periods when markets failed, that is, when they did not provide good results in price and competition. He looked at how a small number of large companies, or even a single company, can strongly influence industries. Banking and telecommunications were among the industries he studied.
The Nobel committee said that unregulated markets often produce socially undesirable results. They can result in higher prices or companies that use their market position to block others. The committee said it chose Mr. Tirole because he thought about how best to regulate markets.
For example, Tore Ellingsen says Mr. Tirole showed the need to develop better rules for the banking industry. This gained urgency after the world financial crisis of 2008-2009. Mr. Ellingsen is Chairman of the committee that awards the economics prize.
"Jean Tirole is really trying to understand what is it that drives the owners of banks. What are their objectives, and what are they driven to do if regulation is very lax? And he then comes to the conclusion that what they are driven to do is to take risks that are far too large from the point of view of the public interest. So there needs to be tougher regulatory regime, in particular for investment banks."
Mr. Tirole works at the Toulouse School of Economics in Toulouse, France. He is 61 years old.
The economics prize is called the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. Alfred Nobel did not establish the prize. It was first presented in 1969.
The Nobel economics prize will be presented at a ceremony in Stockholm, Sweden, on December 10th.
Words in this Story
market - n. a place or system in which goods are sold, bought or traded and where prices are decided
regulate - v. to make rules or laws that control something; to bring something under the control of an official group or authority
influential - adj. having the power to cause changes; to have influence
oligopoly - n. when a small number of companies control an industry
competition – n. a situation in which two or more individuals, groups or companies are trying to make greater gains that the others