Showing papers by "Jean Tirole published in 2015"

Standard-Essential Patents

Abstract: A major policy issue in standard setting is that patents that are ex ante not that important, by being included into a standard, may become standard-essential patents. In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to litigation. This paper builds a framework for the analysis of these patents, identifies several types of inefficiencies attached to the lack of price commitments, and shows how structured price commitments restore competition and why such commitments may not arise spontaneously in the marketplace.

Negotiating effective institutions against climate change

Abstract: In environmental matters, the free riding generated by the lack of collective action is aggravated by concerns about leakages and by the desire to receive compensation in future negotiations. The dominant "pledge and review" approach to mitigation will deliver appealing promises and renewed victory statements, only to prolong the waiting game. The climate change global commons problem will be solved only through coherent carbon pricing. We discuss the roadmap for the negotiation process. Negotiators must return to the fundamentals: the need for uniform carbon pricing across countries, for verification, and for a governance process to which countries would commit. Each country would enjoy subsidiarity in its allocation of efforts within the country. We suggest an enforcement scheme based on financial and trade penalties to induce all countries to participate and comply with the agreement. Finally, the choice among economic approaches, whether a carbon price commitment or a cap-and-trade, is subject to trade-offs, on which alternative reasonable views may co-exist. We discuss monitoring reasons for why we personally favor an international cap-and-trade agreement.

Country Solidarity in Sovereign Crises

Abstract: When will solidarity, which emerges spontaneously from the fear of spillovers, be reinforced through contracting? The optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing, a borrowing cap, but no joint liability. While joint liability augments total surplus, the borrowing country cannot compensate the deep-pocket guarantor. By contrast, the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability, provided that shocks are sufficiently independent, spillovers sufficiently large, liquidity needs moderate and available sanctions sufficiently tough.

Market Failures and Public Policy

Abstract: Industrial organization studies the exercise and control of market power. To this purpose, it builds models that capture the essence of the situation. The predictions of the model can then be tested econometrically and possibly in the lab or the field. In the end, the reasonableness of, and robustness to modeling assumptions and the quality of empirical fit determine how confident economists are in making recommendations to public decision-makers for intervention, and to companies for the design of their business model. Industrial organization has a long tradition: first theoretical, with the work of French “engineer-economists” Antoine Augustin Cournot (1838) and Jules Dupuit (1844); then policy-oriented with the enactment of the Sherman Act (1890) and subsequent legislation; then descriptive with the studies of the Harvard school (“Structure-Conduct-Performance”) comforting and refining the antitrust drive; and finally skeptical with the Chicago school. The Chicago school correctly pointed out the lack of underlying theoretical doctrine and went on to cast doubt on the whole edifice. It however did not develop an alternative antitrust doctrine, perhaps because

Strengthening the Efficiency of Public Procurement

Abstract: Hemos procedido a un estudio empirico relacionando la actividad economica con el uso de las marcas. Este estudio se ha llevado a cabo con una coleccion de mas de medio millon de registros de marcas con las clasificaciones economicas de sus titulares basadas en la clasificacion CNAE. Hemos publicado ya los principales resultados de este estudio en el numero 413 de esta revista. Mostramos aqui mas resultados de este trabajo. El analisis de la relacion entre servicios y productos en las dos clasificaciones se ha abordado mediante el estudio de la division CNAE 46 y la clase de Niza 35. Adicionalmente se han estudiado los nombres comerciales con esta metodologia dado que podrian ser un buen indicador de la actividad economica de las empresas

Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops

Abstract: The recent unravelling of the Eurozone's financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a 'double-decker bailout' theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.

Renforcer l’efficacité de la commande publique

Abstract: Les nouvelles directives europeennes sur les marches publics et les concessions, qui devront etre transposees d’ici 2016, vont conferer a la puissance publique davantage de flexibilite pour negocier avec les entreprises. Cette evolution est economiquement justifiee et peut pallier les asymetries d’information entre les acteurs et repondre aux besoins d’adaptation des contrats lorsqu’ils s’inscrivent dans le long terme. Toutefois, cette flexibilite accrue, pour etre pleinement efficace, doit etre accompagnee de mesures visant a accroitre la transparence, la concurrence et les competences des acheteurs publics, comme nous le detaillons dans une note publiee avec Jean Tirole pour le Conseil d’Analyse Economique(1). Je ne reviens pas sur les 10 propositions avancees dans le rapport mais seulement sur quelques points qui nous semblent particulierement importants.

Financial Crises, Liquidity, and the International Monetary System

Abstract: Once upon a time, economists saw capital account liberalization--the free and unrestricted flow of capital in and out of countries--as unambiguously good. Good for debtor states, good for the world economy. No longer. Spectacular banking and currency crises in recent decades have shattered the consensus. In this remarkably clear and pithy volume, one of Europe's leading economists examines these crises, the reforms being undertaken to prevent them, and how global financial institutions might be restructured to this end. Jean Tirole first analyzes the current views on the crises and on the reform of the international financial architecture. Reform proposals often treat the symptoms rather than the fundamentals, he argues, and sometimes fail to reconcile the objectives of setting effective financing conditions while ensuring that a country "owns" its reform program. A proper identification of market failures is essential to reformulating the mission of an institution such as the IMF, he emphasizes. Next he adapts the basic principles of corporate governance, liquidity provision, and risk management of corporations to the particulars of country borrowing. Building on a "dual- and common-agency perspective," he revisits commonly advocated policies and considers how multilateral organizations can help debtor countries reap enhanced benefits while liberalizing their capital accounts. Based on the Paolo Baffi Lecture the author delivered at the Bank of Italy, this refreshingly accessible book is teeming with rich insights that researchers, policymakers, and students at all levels will find indispensable.

Reinforcing the Efficiency of Public Procurement

Abstract: P ublic procurement, the generic term used to refer to stage and the execution stage (renegotiation). We believe procurement contracts (traditional procurement), public service delegations (including concessions) and public private partnerships, currently represents today significant amounts of money as it is believed to account for nearly 15% of the GDP in France. Whilst the public pro- curement system must strive to achieve the best possible performance in terms of cost and service, its inefficiency is highlighted on a regular basis. In (actual) fact, subs- tantial gains could be achieved through a more efficient management of the system. The present Note examines potential avenues of action, in the framework of the regulatory changes currently under way at European level, with the aim of increasing the efficiency of the public procure- ment system. The contracts upon which the public procurement system is based are subject to certain asymmetries of information (in that the company is more familiar with its costs and the economic environment than the public party) and contrac- tual incompleteness (since it is impossible to foresee every possible event that might arise during the execution of the contract). This being the case, the economic analy- sis recommends that competitive forces be used where- ver possible when it comes to selecting partners and that incentive mechanisms be put in place to establish a real commitment of the parties concerned. New European Directives regarding procurement contracts and concessions, approved in 2014 and expected to be transposed by 2016, will give public authorities greater flexibility to negotiate with companies at both the selection this change to be a positive and economically justified one. It is, however, crucial that it be supported by specific terms governing its management that are not currently outlined in the Directives. Our recommendations are based on three key avenues, namely transparency, competition and expertise. The negotiation procedure must be supported by transpa- rent information both prior to and following negotiation. During the execution stage, it must be possible for amend- ments to contracts to be contested without debilitating the process by facilitating an increase in the number of futile appeals. We also put forward a number of recom- mendations designed to encourage greater transparency where public procurement is concerned. For the purposes of intensifying competition at the tendering stage it would be useful to limit the number of elec- tronic information platforms and to merge them towards a high-performance standardised model. At the same time, it is advisable to simplify procedures, to increase the pro- fessionalisation of public buyers and to centralise the most standard of purchases in order to benefit from eco- nomies of scale and pool the experience of public buyers. Finally, with regards to large-scale projects, we would recommend that a comparative evaluation be performed beforehand in order to determine the most appropriate public procurement tool to meet the needs of the public authorities concerned. The agency responsible for this prior evaluation would also perform ex post evaluations with a view to drawing lessons regarding the various tools and procedures available.

Marking to Market versus Taking to Market

Abstract: While the debate on cost and market-value accounting has been raging for years, economists lack a framework allowing a comparison of their relative merits. This paper considers an agency model in which the measurement of an asset can be based on public market data (marking to market) and/or on the realization of its value through costly resale to an informed buyer (taking to market). At the optimal contract, noisier market data lead to cost accounting and gains trading (selling winners/keeping losers) whereas accurate data naturally favor market-value accounting. The quality of market data and the magnitude of resale costs both depend on the volume of transactions, and therefore on accounting rules. The paper studies the mutual feedback between individually optimal accounting rules and asset market liquidity. This equilibrium approach reveals a socially excessive use of market-value accounting that dries up market liquidity and reduces the informativeness of price signals.