Jean Tirole Wins Nobel Prize

The Nobel committee has chosen Jean Tirole, a leader in game-theoretic industrial organization analysis, for the 2014 economics prize. As I discuss in more detail here, Tirole’s approach to IO is probably an improvement over the old structure-conduct-performance literature of the 1950s, but it still rests on the naive concepts of “monopoly” and “competition” that the Austrians have attacked since the 1940s. Monopoly is defined as “market power,” i.e., the ability to set price over marginal cost, and it taken for granted that the government’s job is to reduce market power to “maximize social welfare.” The Austrian notion of competition as process of dynamic rivalry over time does not figure prominently in this style of analysis, and government regulators are treated as benevolent, fully competent (if not always perfectly informed) agents who run around correcting for market failures. Many of my Austrian friends are disappointed that Israel Kirzner did not win but, as I noted last week, he never really stood a chance. Game theory has become the dominant language not only for IO but also for public-sector economics, corporate finance, and other fields and it was inevitable that the Nobel committee pick Tirole or someone like him. My guess is that Oliver Williamson will be the last Austrian-friendly Nobel laureate, at least for a while.