Morality in markets
The objective was to better understand how moral behavior is affected by the context in which individuals are immersed. Moral behavior is affected by narratives and excuses on the one hand, and by the private and social impact of one’s behavior on the other hand.
“Narratives, Imperatives and Moral Reasoning” studies the production and circulation of exculpatory and responsibilizing arguments justifying actions on the basis of morality. It was found that norms of conduct and discourse, average prosociality, and belief polarization reflect inter alia the local correlation in social roles. And that the type of social network and the extent of “mixity” are key to the propagation of exculpatory and responsibilizing narratives.
“The Morality of Markets” studies how competition impacts ethical behavior. It was found that, contrary to common intuition, there is little reason to think that markets erode moral behavior. Markets are neutral when prices are flexible, and they erode (resp. boost) moral behavior when they are not and moral behavior reduces (resp. increases) one’s firm’s demand.
Finally, “Eliciting Moral Preferences: Theory and Experiment” provides the first theoretical and experimental comparison of the performance of the familiar direct-elicitation and multiple-price-list approaches to the elicitation of moral preferences. It thereby alters our views on some of the experimental work performed in this domain.
Merger policy
The objective was to study mergers and alternative forms of regulating cooperation among firms. “Price Caps as Welfare-Enhancing Coopetition” starts with the observation that properly assessing whether mergers, joint marketing, and other forms of coopetition harm consumers often requires information unavailable to antitrust authorities. The paper proposed a new cooperative arrangement among firms taking the form of price caps for their various products. It showed that price caps allow cooperation among complements while avoiding the suppression of competition under substitutes. This “information-light” intervention offers a credible alternative to standard, “information-intensive” merger reviews.
Debt Crisis – financial and sovereign
The objective of this project was to understand new forms of financial instability and to design regulatory remedies. The common theme in the subprojects is that risk taking may lead to bank illiquidity and insolvency and is encouraged by government bailouts whose prospect allows refinancing until it is too late.
In “Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops”, the banks and their regulators have incentives to “renationalize” Treasury bond markets, as happened in Europe after 2010. The paper provides a strong theoretical warning against policies that have been followed in Europe since the financial crisis.
This line of research also provided a first study of a major regulatory innovation following the 2008 financial crisis, namely the introduction of liquidity requirements for retail banks. “Financial Stability and the Prudential Supervision of Liquidity”, while being more positive on the regulatory choices than the previous project, proposed amendments to the new regulation.
Finally, “Marking to Market versus Taking to Market” investigated the reliability of market-based assessments of solvency. It offered the first micro-founded framework in which the choice of accounting structure (candidates include market-value and historical-cost accounting) can be analysed in terms of its consequences on profit and social welfare. Its framework builds on the primitive ingredients of information economics.
Positive selection
Positive selection is said to exist when over time a principal (firm, state, religion, etc) is left with the agents who are most eager to interact with the principal. While a common situation, the large literature on dynamic relationships had focused on negative selection. “Sequential Screening with Positive Selection" provided the first theoretical analysis of positive selection. “Taxing Identity: Fiscal Policy and Conversions in Early Islam” adapted and applied the theory to study public finance in Egypt following the Arab invasion in 641, and the allocation of the fiscal burden between the poll tax levied on non-Muslims and less discriminatory forms of taxation. It used novel data sources to test (and support) the theory in the context of Egypt’s conversion to Islam between 641 and 1200.
Privacy
This line of research tries to anticipate incoming and major developments of our society when privacy is compromised. “Digital Dystopia” is a first analysis of how autocratic regimes, democratic majorities, private platforms, and religious or professional organizations can achieve social control by managing the flow of information about individuals' behavior by bundling the agents' political, organizational, or religious attitudes with information about their prosocial conduct makes them care about behaviors that they otherwise would not, and by incorporating the individuals' social graph in their social score. Both bundling and guilt by association are most effective in a society that has weak ties and is politically docile. “Public and private sphere” studied theoretically and experimentally how an expansion in the public sphere may crowd out prosocial behavior in both spheres.
Cognitive games
On the more foundational side, “Expectation Conformity in Strategic Cognition" provides a framework to study the many situations in which players of a primitive game privately assemble information prior to playing the game. The focus is on self-fulfilling cognition and cognitive traps.
Wide audience contributions
I published a 640-page wide audience book and bestseller, Economics for the common good. This outreach effort was meant to explain how economics can be used for the common good.
I wrote a book with Olivier Blanchard, which summarizes the findings of the international commission set up by President Macron and which was co-chaired by the two of us: L'urgence du long terme: les grands défis économiques English version of the report is available at
https://www.strategie.gouv.fr/english-articles/major-future-economic-challenges-olivier-blanchard-and-jean-tirole(opens in new window) .
