Whose Turf?

It must be hoped that things wont boil over into an open confrontation between the legislature and the judiciary and that everyone concerned will maintain a perspective on the issue. The truth is that what is happening now is an aberration, or more precisely an exaggerated correction, of the sins of commission and omission of the last quarter century. The judges (some of whom, incidentally, may not be in a position to cast the first stone) are carrying out an unvoted public mandate. This doesnt suit politicians, who have naturally tried to give the issue a constitutional twist. For the present, though, it is nothing of the sort and efforts to project it as such must be exposed. That said, the judiciary too must be careful not to overstep its boundaries.

 

Second-auction awards

For some years now, the feeling has grown (particularly amongst younger economists) that the Nobel prize for economics reflects mainly an attempt to immortalise old friends. Although this might be an uncharitable judgement, the fact remains that economics Nobel prizes have all too often been awarded to less than top-flight economists. This years awardees, for instance, are not very well known. Nor are they especially highly regarded by their peers. If asked to grade James Mirlees (who is mostly known for his work on topics other than the one for which he has been given the prize) and William Vickery, even the most generous economist would give them no more than an A-minus. True, in such highly intellectualised disciplines like economic theory, the dividing line between A-minus and A-plus is thin. But the nagging worry wont go away: has the world been exhausted of A-plus economists? Or is it simply that they will have to wait their turn, that is, until they are over 70?

That said, the contributions of Messrs Mirlees and Vickery, made separately to economic theory, are valuable. To understand why, it is useful to appreciate that much of the legitimacy of classical welfare economics rests on the famous model constructed by Kenneth Arrow and Gerard Debreu (both Nobel laureates). It says that a competitive equilibrium allocation can be such that there is no incentive to move from it (that is, any move away from it will make some people better off only by making someone else worse off). Conversely, it holds that generally, an equilibrium of this sort (known as Pareto optimality) is also perfectly competitive. But this conclusion is based on the implicit assumption that everyone has the same level of information, that is, there are no asymmetries of information.

This assumption had always bothered economists because it was so obviously unreal. James Mirlees and William Vickery, says the Nobel Committee, drew attention to this shortcoming (as did George Akerloff with his theory of `lemons or used cars in the US) by looking at how such asymmetries affect a variety of economic decisions. Mirlees looked at what happens when governments levy progressive taxes without information on differential labour productivity and Vickery fathered the esoteric notion of