When I was studying economics in the 1980s, it was quite vulnerable to the criticism that the entire edifice was built on a shaky assumption: homo economicus. But now that Kahnemann, Thaler et al. have slain h.e., economics is that much stronger.
In today’s Financial Express, Sudhir Shah and Payal Malik conclude their assessment of the work of Tirole and Laffont (who would have been a co-recipient had he lived) concludes thus: The institutional context for Tirole’s work is also important. While Tirole and numerous collaborators have built a sophisticated theory to guide regulators and thereby accorded regulators an important institutional space in market economies, subsequent work recognises the institutional and political-economy constraints on regulators. It was pointed out, especially by Laffont, that it is important to recognise that effective regulation is hampered by the weak institutional environment of developing countries, which results in the regulatory contract between governments and firms being incomplete. It is vital that the political system provides a clear objective and mandate to a regulator. The regulator should have the legal basis and the incentives to pursue her mandate.
It’s always nice when someone whose work has been used in LIRNEasia wins a big award. Robert Shiller greatly influenced our thinking on risk-reduction in the aftermath of the 2004 Indian Ocean tsunami. It’s true that he did not get the 2013 Nobel for that work, but still we are happy that an economist who always found the time to engage with contemporary economic policy issues has been so recognized. Report.