THE TOULOUSE SCHOOL OF ECONOMICS MAGAZINE

Living economics

#8 SPRING 2015 Nutritional taxes: do they work?

AXA makes a pledge for research

French economists: a view from Boston

The Bank of France rewards the best researchers

The Economist, the Market and the Nobel Prize Specia� Issu� Editor�’ messag� #8 Content�

begins with a particularly challenging poli- New� & Event� 2015 tical and economic climate: Eurozone crisis, concerns about stagflation, energy gluts, unemployment, low 4 Expertise rewarded growth rates, unsolved global warming challenges, wars and 5 Events: Business Networking Day terrorism... In this context, the role of academic economists in supporting decision makers with science-based analysis is 6 Announcement of the Jean-Jacques Laffont Chair increasingly critical. Researchers must strive more than ever in Digital Economics � inker� to provide timely, solid information on the nature and magni- 6 Save the date 8 Taxes to fight obesity? tude of the different phenomena in order to help industries Vincent Réquillart and Céline Bonnet adapt and policy-makers formulate appropriate policy res- 7 Lending to SMEs: targeted measures ponses. TSE members aim to give their best to this collective 11 Quality, a Chinese puzzle endeavour towards optimal policy-making. Marie-Françoise Calmette et al.

These times of radical changes and global crises also bring to light the need to adapt economics 12 The client is king teaching to the world we live in, and provide our economists in training with new tools to analyse � � Nobe� Andrea Attar, Thomas Mariotti and François Salanié the world they will soon be contributing to. Specia� The Toulouse economists have endeavoured since the creation of the TSE School in 2011 to broa- den our curriculum and embrace new methods. Thanks to the close links forged with the business / Issu� policy world over the past 25 years, our professors have been able to put into place a number of actions to connect our students to the real world. Examples include our weekly series of business Actor� talks, our annual business networking day, our project-based learning programme, our international 22 AXA: Research and Protection internship opportunities and our active alumni network. We also involve our students in interac- 14 The event Administrator, Deputy CEO, AXA in charge tive experiments, and send them out to companies to see the problem business leaders are facing. 15 The portrait of Finance, Strategy and Operations There is no better way to learn how markets work and how regulators manage them than to see it with one’s own eyes. 16 The figures 24 French economists stand out from the crowd Our students particularly appreciate evidence-based economics, which notably helps 17 The analysis Fabien Fieschi, French Consul General them to handle data (BIG data!) and filter the information they find there. As our TSE Daniel Garrett to Boston. colleague Paul Seabright recently pointed out, economics teachers today are no longer The TSE community is proud 18 The stories “gurus” but rather “gatekeepers” to information. A challenging but fascinating shift for to present you the all-new TSE mag, 26 Target: the top of the league table! the teaching community to adapt to. with a revamped design and broader, 19 The history Anne Le Lorier, first Deputy-Governor more in-depth contents. We hope Hervé Ossard of The Bank of France Our focus also needs to reach out beyond economics into the other sciences. As our you’ll enjoy it! 27 The Winners 2014 - Prize for societies today show increasing signs of altruistic behaviour, both our research and 21 Make way for Monetary and Financial Economics teaching communities need to link up to sociology, psychology, politics, history, reli- the artists! gion, biology, and many other disciplines to help build and test our economic models, taking a leave from the traditional view of rational agents. At TSE, we work closely with our associated research centre, the Institute for Advanced Study in Toulouse (IAST), with this in mind. Some fascinating and unexpected synergies are being born of these collaborations. Our economics understanding can only be richer for these exchanges. Campu� Our teaching faculties can also learn from other disciplines, notably biology, that excel 28 Independant learning in providing a multi-faceted understanding of today’s realities. Philippe Alby Magazine trimestriel de Toulouse School of Economics 21, allée de Brienne - 31 015 Toulouse Cedex 6 - FRANCE - Tél. : +33 (0)5 67 73 27 68 29 Thinking outside the box

Christian Gollier, Director - Toulouse School of Economics Directeur de la publication : Christian Gollier - Directeur de la rédaction : Joël Echevarria Rédactrice en Chef : Jennifer Stephenson - Responsable de Production : Jean-Baptiste Grossetti 30 Training tomorrow’s experts Jean Tirole, Chairman - Toulouse School of Economics Ont également participé à ce numéro : Eunate Mayor - Claire Navarro - Priyanka Talim Conception graphique et rédaction : Yapak - Crédits photos : © Fotolia - © Studio Tchiz Couverture : Niklas Elmehed © Nobel Media - P.6 : © MCC / Thibaut Chapotot Dossier Nobel : © Holger Motzkau 2010, Wikipedia / Wikimedia © Marco Borggreve - © Niklas Elmehed - © Alexander Mahmoud - © Nobel Media AB This magazine has been funded by a P. 22 : © Patrick Messina - P. 24 : © French Embassy in the U.S. - P. 27 © Banque de France French government subsidy managed by the Agence Nationale de la Recherche Tirage : 1 200 exemplaires. Imprimé sur papier offset labellisé PEFC. under the framework of the n° ISSN en cours d’enregistrement. investissements d'avenir programme 2 www.tse-fr.eu reference ANR-11-LABX-0052 www.tse-fr.eu 3 New� & Event�

Expertise Rewarded Events

More and more companies attending TSE’s Business Networking Day Thierry Magnac Bruno Jullien Nicolas Treich 42 companies came to meet our students at the 3rd edition of the Forum elected to the Council & Thomas appointed co-editor-in-chief of the organised by TSE last November. There were opportunities for jobs and internships. of the Econometric Society Geneva Risk and Insurance Review The wide range of talks and presentations given by professionals throughout the (GRIR). day gave the students invaluable insight into the work of the companies they Mariotti may join later. Bruno Jullien and Thomas Mariotti, both Published twice a year, this international CNRS research directors at TSE, have also journal provides a forum for exchange on Forum 2014 in video: recently been elected as fellows of the all aspects of risk and insurance economics, youtube.com/TSEchannel Econometric Society. with emphasis on theoretical, empirical Our congratulations to all three! and experimental research in these fields. Director of Research at INRA, member of www.econometricsociety.org LERNA and of IDEI, Nicolas Treich is joining his colleagues Christian Gollier and Bruno Jullien as co-editor-in-chief of this journal. Christian Hellwig His research focuses on the theory of risk and decision making, environmental eco- elected to the Board of nomics and the analysis of the cost-benefit the European Economic Association ratio. He has published several scientific articles, notably on the precautionary principle, the value of a statistical life and climate policy. He has organised several international congresses and written The Econometric Society is an international various articles and reports for general learned society which publishes the jour- readership, on risk-management policy. nal “Econometrica” as well as two other journals dedicated to economic sciences (Quantitative Economics and Theoretical Economics). It organises major internatio- nal congresses such as the EEA-ESEM, the The class of 2014 in the spotlight annual summit of European economists and econometrists, held jointly with the “The graduation ceremony marks the end of your studies... and the beginning European Economic Association (EEA). of your career!” highlighted the patron of the 2014 class, Anne-Juliette Hermant, “The Board discusses congresses, the nomi- The European Economic Association (EEA) Director of Development and Training at AXA, on 29 November, during the nations of editors and the development of is the biggest association dedicated to eco- Yinghua He ceremony led by Bruno Sire, President of l’Université Toulouse 1 Capitole and Jean Tirole, Chairman of the Jean-Jacques Laffont Foundation - TSE. the Econometric Society” Thierry Magnac nomic sciences in Europe. It publishes the awarded “the Young Researcher explains, “It meets once or twice a year around Journal of the EEA and organises congresses, in Economics prize 2014” the time of the American or European confe- notably the EEA-ESEM, organised by TSE The ceremony in pictures: rences. I will be part of that process and it is in 2014 with 1500 participants. On 27th November last year, the youtube.com/TSEchannel essential for TSE that one of its members be Having obtained his PhD at the London Banque de France Foundation awarded in a position to pass on the opinions of the School of Economics in 2002, Christian the Young Researcher in Economics TSE community about the developments in Hellwig was Assistant Professor at UCLA prize to Yinghua He for his research the main learned societies of our profession.” before joining TSE as Professor of Macroe- work on “Answering policy questions Thierrry Magnac is a member of TSE and a conomics, in 2010. He was elected for a 5 with carefully designed empirical professor at l’Université Toulouse 1 Capi- year term, during which he will take part strategies“. tole. His research focuses on empirical in decision making by the Council of the questions in the economics of education, association as a representative of TSE. www.banque-france.fr work or consumerism and on methodo- Nicolas Treich logy in microeconometrics. www.eeassoc.org TSE / INRA researcher Affi liated researcher at CESifo Group Munich

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Announcement Lending to SMEs: of the Jean-Jacques targeted measures China has overtaken the USA to become the world’s Laffont Chair in Digital Since the beginning of the crisis, business insolvencies have shot up by 25%. Is this situation caused by diffi culties in accessing funding in a context largest economic power Economics where banks have had to adjust to new prudential requirements? The French The fall in oil Economic Analysis Council tells us more: The French Minister of Culture and Communication, Fleur Pellerin, prices: good or announced on 12 February the launch of this new Research TSE researcher Augustin Landier wor- short-term financing needs rather than Chair which will lead Toulouse researchers and their colleagues ked with Jacques Cailloux (Nomura) and investments and are not unrelated to the GDP Guillaume Plantin (Science Po Paris) observed lengthening in payment times. (IN PPP) from around the world to shed academic light on the challenges IN BILLIONS bad news? of digitalization in our societies. This Chair will allow for several on the latest “Note from the Economic The authors focus their recommendations OF DOLLARS Analysis Council” which highlights the on ways to get over the asymmetries in 17 632 recruitments at Toulouse School of Economics and at the Institute 17 416 for Advanced Study in Toulouse, numerous conferences and funding difficulties of the SMEs and very size and information which handicap these The fall in oil prices, unprecedented since the 2008 financial workshops around the subject as well as a yearly international small businesses targeted: those difficulties companies both in keeping to payment In 2014 crisis, is “good news for the world economy”. So says forum, which will be held in Paris, gathering the best researchers affect the smaller companies, they concern deadlines and accessing credit. In 2000 Christine Lagarde, Managing Director of the International In 1980 in Digital Economics. Disciplines such as Psychology, Sociology 10 290 Monetary Fund (IMF), who considers that a fall of 30% in the and Economics will be at the heart of these activities, exchanging price of ‘black gold’ should “lead to a surplus (Editor’s note: in views between disciplines in order to better understand these BANK LENDING TO BUSINESSES, IN % OF GDP growth) of 0.8% for most advanced economies, all of which new phenomena. are oil importers” So, good or bad news? Give us your opinion “The digitalization of society 110 4 788

online and watch the survey results as they affects all human activities; 3 621 7 277 come in live on debate.tse-fr.eu it is at the heart of the economic 74 2 435 2 587 3 261 63 3 020 and cultural shifts of the 60 43 2 148 115 1 535 1 607 21st century. The Chair aims to 70 1 515 contribute to the understanding 58 46 64 2012 of these developments.” 49 53 2007 Jean Tirole 50 57 50 According to figures from the International Save the date 2000 Monetary Fund, the Chinese GDP has overtaken 48 51 44 41 45 1995 the American GDP for the first time since 1872. China has thus become the largest economic France Germany Italy Spain United Kingdom 4 & 5 power in the world. 15 & 17 JUNE 2015 Expressed in purchasing power parity terms APRIL 2015 09 & 10 (PPP), the Chinese gross domestic product was 22 & 23 OCTOBER FROM 30 Source: French National Accounts, Eurostat. 26 & 27 www.cae-eco.fr 17 632 billion dollars in 2014, whereas the MAY 2015 2015 NOVEMBER TO MARCH 2015 28 & 29 USA’s was 17 416 billion. MAY 2015 11 DECEMBER 2015

Economics and IMEBESS Biology Workshop The International TSE alongside Workshop: industrial Conference Conference on electoral Meeting on IAST, institute for organisation Experimental and on Financial pluridisciplinary Paris Climate 2015 What is the point of competition? behaviours, institutions European Jointly organised Behavioral Social Econometrics research, is This book, published on 30th September last year, compiles the answers of and reform Workshop by the institute for France has been Sciences TSE brings together organising the more than 100 contributors amongst whom Charles Beigbeder, Marcela Lacub, Conferences jointly on Health Industrial Economics offi cially named top international third edition of organised by researchers IMEBESS will be Economics and the Centre for as the host country François Hollande, Arnaud Montebourg, Michel Sapin, Nicolas Sarkozy, many specialists in the this workshop from the IAST and TSE. organized by the IAST TSE is organising Studies of Insurance for the 21st Climate fi eld for this annual on the threshold different companies and Claude Crampes and Thomas-Olivier Léautier, both James Synder, professor and TSE. It intends the 16th workshop Operations. This 14th Conference in 2015. conference between economics researchers at TSE and specialists in the energy economics. at Havard will be talking to bring together in this international edition of the workshop Ahead of the event, and biology about “the role of the researchers from series gathering will throw new light on the TSE researchers in Toulouse Primaries in the American all around the world researchers in Health all of the issues around Nicolas Treich and aquoisertlaconcurrence.org Electoral System” in all areas of the Economics industrial organisation Stefan Ambec offer social sciences who and insurance a series of comments are interested in and analyses: experimental methods. Events by invitation only, fi nd out more: www.tse-fr.eu - www.iast.fr debate.tse-fr.eu 6 www.tse-fr.eu www.tse-fr.eu 7 � inker�

VINCENT RÉQUILLART AND CÉLINE BONNET Taxes to fi ght obesity? THE MAIN NUTRITIONAL TAXES AROUND THE WORLD (EXCLUDING ALCOHOL) COUNTRY TAXES TYPES OF FOOD SOFT DRINKS USA Between 0 and 7% Soft drinks ver the last few years, we have been surrounded by more and more Since prices represent one of the primary At the same time, there are substitu- depending on State (ad valorem) nutritional information, on posters, in advertising campaigns and means of action, this topic has given rise to tions within the same family of drinks, or Between 0 and 0.58 €/l Soft drinks (excise) depending on State elsewhere. The French, for example, know that they must have their significant international research. Several shifts in consumption from taxed drinks O countries have implemented nutritional to other drinks. Finland 0.075 €/l Soft drinks ENERGY DRINKS “5 a day”, that they should “eat less, move more”, they even know that “milk is full of natural goodness”. But nothing is working! Obesity rates are creeping up. taxes, often on soft drinks. These are 0.75 €/kg Sweetened foods recent policies, consequently we cannot So does the nutritional tax actually contri- Hungary 0.65 €/l Sweetened syrups To deal with what is fast becoming the yet measure their actual impact. We have bute to lowering sugar consumption? 0.02€/l Soft drinks to use modelling to evaluate their potential Yes, when the tax is only applied to world’s top public health problem, the 0.13 à 0.81 €/l Energy drinks SOFT DRINKS French legislator opted to get heavy- impact. We simulated the consequences sugar-sweetened drinks, the consump- SWEET SYRUPS of two policies: a tax on sugar-sweetened tion of added sugars is reduced by 0.42 €/l Other ready-to-use handed: since January 2012 all sweetened sweetened products drinks have been taxed, even those using soft drinks and a tax like the one currently 440g/year thanks to the substitution of 0.81 €/l Savoury snacks artificial sweeteners. Was that the bright in use in France, on all sweetened soft “light” versions of products for their 1.62 €/l Jam idea we were waiting for? Maybe not. drinks (sugar or artificial sweeteners). sugar-sweetened equivalents. This is not A very thorough French study challenges negligible but it remains low in relation to Norway 0.85 €/l Sweetened foods our assumptions. Two TSE researchers, What makes your work different to other the health issues at stake. In fact, consump- France 0.075 €/l Drinks containing added sugar Céline Bonnet, INRA research fellow and research? tion of soft drinks is not particularly high SAVOURY SNACKS 0.075 €/l Sweetened drinks Vincent Réquillart, INRA research director The fact that we take into account the in France (the British consume two and a SWEET FOODS and member of the Institut d’Economie way the industry and retailers react via half times more than the French and the 1 €/l Energy drinks Americans five times more). Industrielle, have evaluated the impact their pricing decisions. Most research Source: Economic briefi ng IEM - sept 2014 of nutritional taxes. Vincent Réquillart assumes that the tax is passed on to the When the tax concerns all drinks (as it tells us about their findings. consumer. There’s no reason that should does in France), the substitution with light be the case! Firms are drinks (whose prices also go up) no lon- not passive, they develop ger happens. Total consumption of sugars Where do nutritional Most research assumes that strategies. They can raise increases because of consumption shifts taxes stand among the the tax is passed on to the various initiatives? prices more than is strictly to fruit juices. consumer. There’s no reason They are not widely used necessary to cover the tax Taxing all drinks, be they sugar-sweetened Wouldn’t it be a possible solution to because a larger section of the population that that should be the case! yet, but they have their or, on the contrary, reduce or light, is counter to health recom- make healthy products more accessible? is concerned. This is an important point. place among the mea- their profit margins so as mendations. In practical terms, the tax That is what was done for cars with the Consequently, I lean towards this strategy sures to be taken to improve eating habits to maintain their sales. implemented does not reach its goal of bonus/penalty system. But the intended which requires far less change to eating – acting on prices in order to influence That is what we showed. When an excise reducing sugar consumption. It acts pri- effect will only become clear in the longer habits and could also encourage firms to consumer choices is a proven method. tax is applied - x centimes per litre - it marily as an instrument to increase the term. In the case of food, defining what is reformulate their products. Most current nutritional policies rely on is more than passed on to the price the State’s budget revenue. good and what is bad when dealing with informing the consumer, but their impact is consumer pays. If the tax is 10 centimes a large number of nutrients, is complex. So, paradoxically, the least stringent weak. There is also the option of influencing per litre and the price of the drink is 1 euro, If we take another example: tobacco, What’s more, eating habits change very policies can actually be the most suc- supply by encouraging the food industry the new price for the drink doesn’t go from the price increases have indeed had the slowly. cessful, is that right? to manufacture healthier products, with 1€ to 1.10€ but to 1.12€ or 1.15€. intended deterrent effect... haven’t they? In general, inducing changes between cate- Not always! An initiative in the UK concerning less sugar, less salt, less fat. But that is Whereas if the tax is set as a percentage, It’s all in the timing! In the case of tobacco, gories of products - for example reducing salt content led to a voluntary agreement a lengthy, necessarily complex process. it is not fully passed on to the consumer. there was a set of actions with the same consumption of fatty products and eating to reformulate food products. But with aim: informative advertising campaigns, more vegetables - is very difficult even if a strong constraint which threatened 2030 the ban on smoking in public, pricing policy the health benefits would be significant! the industry with strict standards if food 3.3 billion and above all, long term measures. And Making changes within the same category composition didn’t change for the better... the levels of taxation were much higher is easier, for example consuming drinks Success guaranteed! Having said that, than for food. If the aim is to be efficient which are less sweet instead of very sweet despite all the measures implemented, Overweight from a health point of view, the impor- drinks. Although individual gains are more obesity has not been eliminated. tant notion is that of a coordinated set of limited, in terms of public health, those Vincent Réquillart measures, all aiming for the same result. changes can have a noticeable effect ... TSE / INRA / IDEI researcher PEOPLE OVERWEIGHT IN THE WORLD OVER THE AGE OF 20. 2014 Source: World Health Organisation (WHO) 1.4 billion

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MARIE-FRANÇOISE CALMETTE et al. ... Quality: a Chinese puzzle So the authorities pursue their search for Which other aspect is worth looking into? And inversely, could environmental policies efficient measures, and the debates over We intend to pursue our research into have an effect on health? It’s a question uality goods do not always sell, even if there are consumers willing taxation policies are far from over. the notion of reformulation by extending of throwing light on the notion of sustai- to pay their price on the market. What explains the domination of our work in a new direction: taking into nable food. account environmental effects. Because Q low-quality and low-price goods? In their recent paper “Quality in open In the UK, more than 2/3 of adults are when eating habits change, the effects markets: how larger leads to less”, Calmette et al. demonstrate that overweight. A report published by Public are not only felt on health but also on the differences in home market sizes and predatory strategies by fi rms of large Health England (PHE) states that the environment. The food chain is responsible emerging countries can shut the production of high quality goods down. various health problems due to obesity for between 20 and 25% of greenhouse cost almost 11 billion pounds every year gas emissions. It is a well-known fact that the globa- Why? The size of the domestic market (13.7 billion euros). Do diet recommendations have a positive lisation of markets has contributed to for the emerging economy firms allows or a negative effect on the environment? the boom of the emerging Chinese giant. them to behave as leaders. They can avoid Since 2009, China is the largest exporter paying the price of adapting their quality. of goods in the world, and will remain In sum, they will maximise their profit by so. Thanks to inexpensive costs of pro- imposing their model of mass-production duction, Chinese firms make low-priced of low-priced, low-quality good on their > Scientific article: Bonnet Céline and Réquillart Vincent, 2013. and low-quality electronics, clothes, toys competitors. In other words, the struc- Tax incidence with strategic fi rms on the soft drink market and other manufactured goods that flood ture of incentives faced by the competing Journal of Public Economics, 106: 77-88. markets around the world. Western eco- firms is distorted in favour of the actors > Article for more general readership (in French): Bonnet Céline and Réquillart Vincent, 2014. Céline Bonnet What can we expect from nutritional taxes? INRA Sciences Sociales, n° 2/2014. TSE / INRA researcher nomies have welcomed the trade, as the of the emerging economies when their entire range of quality goods are avai- domestic consumers have a low willin- lable to tailor to consumer preferences gness to pay for quality. This is not just Marie-Françoise Calmette on all markets. Initially, a simple division a question of state of affairs, however. TSE / UT1 researcher of labour was expected: small developed Circumstances will allow firms of the large economies would produce expensive goods emerging economies to deploy predatory The established models do predict, for for high-end consumers, while the firms strategies. When a firm exports without instance, that the firms of rich and small of the large emerging Chinese economy adapting its quality, it will be able to do economies will not be able to face the Sugar consumption in the world would satisfy the demand for low-priced, so at a price that will prevent its high- costs of other increases in quality to ease low quality goods. But the actual context quality competitors from seeking refuge up the competitive pressure. Since 1990, sugar consumption has revealed an unexpected pressure on in other strategies. ... firms producing quality goods for deman- in France has stabilised at 35kg/ SUGAR: ding consumers. In some cases, such as in year/capita, having been over CHINA IS THE MOST HIGHLY POPULATED COUNTRY IN THE WORLD, WORLDWIDE clothing, free trade leads to less diversity TURNOVER WITH THE LARGEST DOMESTIC MARKET 45kg in 1965. of quality amongst manufactured goods.

The French have consumed sugar at a REGISTERED POPULATION One-way trade and predation relatively stable rate for years now, with PEOPLE’S REPUBLIC OF CHINA consumption varying between 25 and 35kg/ There is no account of this pressure in 75BILLION DOLLARS current economic literature. In gene- year/capita. This is well above the world PER YEAR INDIA 1.357 BILLION average, which is around 20kg. ral, it is predicted that firms competing for the shares of a global market enter But the world consumption record goes to 1.8 USA the inhabitants of Singapore with 84.7kg/ MILLION PEOPLE a non-cooperative game where they EMPLOYED year/capita! will “leapfrog”, differentiating the quality Well ahead of Costa Rica and their 51kg of the goods they offer when markets 1.252 or New Zealand and their 48kg. open up. The firms of the large emerging BILLION In 2013-2014 the consumption of sucrose 18 economies will meet the demand of the is estimated at around 25kg/year/capita, or MILLION FARMERS high-end consumer to adjust their quality an average of 70g/day. This includes sugar upward, while the firms of the small rich consumed directly and sugar incorporated economies will adapt their supply to the in sweetened products. willingness to pay of their potential consu- 316.1 mers on the emerging market. In the model MILLION Source: INCA/CREDOC 2010 113 1980 2000 2013 COUNTRIES established by the authors, the two-way trade is actually unlikely to occur. Source: World Bank, United States Census Bureau

10 www.tse-fr.eu www.tse-fr.eu 11 � inker� ANDREA ATTAR, THOMAS MARIOTTI AND FRANÇOIS SALANIÉ, RESEARCHERS AT TSE The ... Size matters This may be a typical Chinese problem The client is king because of the size of its domestic he recent health insurance reform wave has led to a revival of impor- market. This is not about the costs of tant policy debates related to adverse selection: although health is a Nobel wages or production. Other emerging economies have not seemed able to T public service almost by defi nition, private insurance is expected to Specia� issu� yield the same constraints on deve- play a greater fi nancing role. Thus, fi nding the right balance between public loped economies. The research and and private health coverage, mandatory and voluntary health insurance, and models defended here highlight the building the appropriate regulatory framework are key questions in current 14 The event direct link between the size of the affairs, both in Europe and in the USA. Highlights of the ceremony domestic market and the capacity of At some point in their lives, everyone will the government picks up the tab for those firms to impose their strategy, preying 15 The portrait on high-quality competitors. need access to healthcare or medical treat- out of work who cannot gain coverage The economist, the market While the decrease of diversity in the ment. The unprecedented rise in the cost through a family member. In the US, only quality of goods is hence explained, of healthcare is challenging businesses, around 25% of individuals opt for addi- and the Nobel Prize new questions remain to be addressed. households and governments alike, making tional, private coverage. Chinese exports in recent years have the subject a magnet for controversy. In this context, there is clearly room for 16 The fi gures substantially increased in quality, espe- Furthermore, while health care costs are improvement. Andrea Attar, Thomas All you ever wanted cially in the domain of high technology. steadily increasing, higher cost does not Mariotti and François Salanié give us one to know about necessarily translate as better quality. of the keys to success: in a world where Future research will look to explain the the Nobel Prize link between size and this leapfrog For example, if we compare the French and insurees might buy several insurance effect. American systems, not only are French policies from several distinct insurers citizens healthier than the U.S. popula- and supply is carefully regulated to avoid 17 The analysis tion, but per capita spending on health cross-subsidies between contracts, cove- Why Jean Tirole? > Quality in Open Markets: care in France is also roughly half as much. rage can be efficiently provided by the How Larger Leads to Less. private sector. 18 The stories Marie-Françoise Calmette France relies on a mixture of public and First hand impressions and Maureen Kilkenny, Catherine Lous- private funding, as does the U.S. But Unlike traditional policy recommendations talan, Isabelle Pechoux and Christian Bernard unlike Americans, every French citizen from exclusive models of competitive 19 The history has access to basic healthcare coverage insurance markets under adverse selec- Partnership research www.tse-fr.eu/publications through national insurance funds, to which tion, consumers remain sovereign in their before the Nobel both employers and employees contri- decisions to purchase insurance, compe- bute. Some 90% of the population also tition between firms ideally substitutes 21 Make way for the artists! buys supplementary private insurance to taxes and subsidies, and there is no need provide benefits that aren’t covered, and to make basic coverage mandatory. Creative visions of the Nobel Prize

SPENDING ON HEALTH IN FRANCE AND IN THE USA

> Andrea Attar, Thomas Mariotti and François Salanié. 8 895 $ “Multiple Contracting in / PER CAPITA Insurance Markets: Cross-Subsidies and Quantity Discounts”. TSE Working Paper, 4 690 $ n. 14-532, 7 October 2014 / PER CAPITA www.tse-fr.eu/publications 17.9% OF GDP FOR HEALTH

11.7% OF GDP FOR 10 HEALTH DECEMBER 2014 Source: World Health Organization / World Bank 12 www.tse-fr.eu www.tse-fr.eu 13 � � even� � � portrai� The Economist, the Market and the Prize

October 2014, around midday. TSE chairman Jean Tirole was working in his offi ce with a colleague on an impor- 13 tant research funding project. His mobile phone began to ring incessantly but, keen to concentrate and reluctant to dis- turb his colleague, Jean Tirole did not pick up until the 6th call when, seeing the +46 (Sweden) prefi x on the screen, a sudden doubt crept into his mind as to the identity of the caller.

With profound apologies to his colleague, The need to be humble he said “Céline, I think I had better take this applies also to the field that call…” and from then on began the “Nobel was rewarded by the Prize. whirlwind”, as we like to call it here at TSE. Recognizing that indus- The day of no return, the great exciting tries are different from each news that was to bring joy and pride to other and evolve rapidly, Jean, his family, and the whole academic researchers in industrial orga- community around him, both at TSE and nization have patiently built a body of the colleagues to whom I am indebted worldwide. knowledge that has helped regulators for the Prize, in short to the wonderful Two months and a very exciting journey to better understand market power and life of a researcher. But I shall be pro- later, Jean Tirole received his Nobel prize the effects of policy interventions, and foundly and permanently grateful to The Highlights of the Ceremony from the King of Sweden during a week helped firms to formulate their strate- the Committee for the immense honor of incredible festivities. Jean’s words on gies. They have thereby contributed to it has bestowed upon me, and to the n 10th December, the anniversary of the death of Alfred Nobel, the slightly, the laureate walks across the floor receiving the prize making this world a better place, the Nobel Foundation and Sweden for their proud laureates attend a ceremony whose meticulous protocol is to the King who presents them with the economist’s first mission. Yet, there is astounding mission of drawing attention timed to perfection, at the Stockholm Concert Hall. prestigious medal. “The great economist John Maynard Keynes so much we still have to learn, and the to Science year after year.” O once wrote: “If economists could manage to world changes faster than our unders- The ceremonies, rehearsed on the very A symphony orchestra accompanies the Perhaps the most surprising element of get themselves thought of as humble, com- tanding can keep up. morning of the prize giving, are presided proceedings. Following the ceremony, the Nobel ceremonies actually takes place petent people on a level with dentists, that there is a banquet for 2000 guests. over by the sovereign of Sweden or of 3 days later on 13th December, Saint would be splendid.” Humility is not easy to preserve when Norway, before the royal families, repre- Dishes arrive in carefully choreographed Lucy’s day, symbol of light: numerous 83 years and much research later, we receiving such a prestigious award. Nobel Prize Banquet, Sweden, 10 December 2014. sentatives of civil society, diplomats and procession, announced by fanfares. Each young Swedish women and men, dressed would perhaps aspire to be compared Albert Camus in his acceptance speech many dignataries, all in full regalia. of the laureates, in white tie and tails or in white robes, line up at the foot of the with “meteorologists” or “doctors”, whose wondered how he, “rich only in his doubts evening gown, hears a short speech praising laureate’s bed to awaken them singing scientific accomplishments have been truly and his work still in progress, could cope with their work. While standing assistants bow Saint Lucy’s song. outstanding and yet have to face challenges being at the center of a glaring light.” His that are rather down-to-earth. Our failure answer was that he could not live wit- > Relive the Nobel Prize lecture: to foresee or prevent the financial crisis is hout his art. The great French scientist www.nobelprize.org a sore reminder of the dangers of hubris. Henri Poincaré described the unmatched True enough, we had worked on most of pleasure of discovery: “Thought is only a > Jean Tirole biography, publications and CV: its ingredients. But like a virus that keeps flash in the middle of a long night. But this www.tse-fr.eu mutating, new dangers emerged when we flash means everything.” > Official resources on the Nobel Prize: thought we had understood and avoided Wisdom therefore encourages me to www.nobelprize.org the existing ones. return as soon as possible to my lab, to

14 www.tse-fr.eu www.tse-fr.eu 15 � � fi gure� � � analysi�

these readers. Tirole studied pricing and All you ever wanted to know Why Jean Tirole? competition in these markets, influencing thinking on the regulation of credit-card Jean Tirole’s Nobel Prize has generated much excitement for those of us interchange fees (the fees paid by a about the Nobel Prize working alongside him at Toulouse School of Economics (TSE). Tirole’s merchant’s bank to a customer’s bank). prize comes as recognition for over 30 years of work on a wide range of There are astonishing statistics to be found on the Nobel Foundation’s website... Another example is his study of “patent “topics, from banking and fi nance to the regulation of network businesses.” as pools” (in collaboration with Josh Lerner), Assistant Professor Daniel Garrett writes in an article originally published in THE AVERAGE where companies come together to cross- AGE OF NOBEL The Indian Express. license patents needed for a given techno- LAUREATES: AGED logy. Such arrangements seem increasingly THE YOUNGEST IN ECONOMIC The Nobel committee’s award specifically important in high-tech industries such as LAUREATE: SCIENCES focuses on Tirole’s “analysis of market MALALA AGED software development and biotechnology. NUMBER OF YOUSAFZAI, 67 power and regulation”. There are two LAUREATES However, because companies set prices PEACE 2014 central questions. First, how will firms 842 BY GENDER 17 for the pooled patents cooperatively, it is MEN behave when there are only a few of them natural to worry that the practice could 47 in the market? What prices will they set, WOMEN hurt consumers. what range of goods will they offer, and THE OLDEST Lerner and Tirole argued that it is difficult LAUREATE: what will be the quality level of these to assess whether this is the case, and AGED LEONID HURWICZ, goods? Second, if competition among ECONOMIC that it depends on the market in question. firms is insufficient to constrain prices, SCIENCES, 2007 But they were still able to provide robust 90 what policies should regulators use for the policy advice. benefit of consumers and society at large?

Tirole has also studied regulatory issues To answer these questions, Tirole has Daniel Garrett TSE / UT1 researcher in banking and finance, of special interest championed the approach offered by in view of the recent financial crisis. He information economics, which centres large profits to the detriment of consumers. Macroeconomics studied the implications of government on the role of information that individuals The contribution of Tirole, together with IN bailouts in banking and considered how and firms hold privately. A classic example Laffont, was to derive the optimal incentive 2009 IS THE MOST HONOURED FIELD OF a government can restore a frozen asset RESEARCH IN ECONOMIC SCIENCE, is the regulation of a firm’s pricing, say a scheme. They showed that the optimal market - the dilemma that was faced in the ELINOR OSTROM WAS THE WITH A TOTAL OF 9 LAUREATE privately owned network that supplies scheme lies between the two extremes. FIRST FEMALE LAUREATE US market for mortgage-backed securities. IN ECONOMIC SCIENCES electricity to homes and businesses. Such Optimal regulation balances incentives distribution networks are examples of for efficiency against reductions in the As these examples attest, Tirole’s prize “natural monopolies”: firms that face no firm’s profits. was not rewarding a single contribution competitors because replication of their but a wide-ranging body of work. He has 20 000 Flowers infrastructure is infeasible or too costly. Laffont and Tirole also studied dynamic been successful in identifying topics of Other examples include railroads, ports models of regulation, noting that regulators importance for practitioners, such as ADORN THE BANQUET HALL 257 and phone lines. do not set firm incentives once and for USA regulatory policymakers. The running theme all but typically revise them over time. is careful modelling of the incentives faced The question for a regulator of a natural They analysed the problem of a regulator 75 by individual actors. He has devised models ECONOMIC 1st monopoly is how to set the firm’s prices, that cannot commit to its future policies, SCIENCES NUMBER OF 93 that are detailed enough to capture the LAUREATES UNITED given that it has better information about showing how a firm will be led to reveal KINGDOM relevant complexities, but simple enough PER COUNTRY its technology. One possibility is to simply let its true costs only gradually. SINCE 1901 to be accessible to a wide readership of 103 the firm recover all of its costs. But this gives PEACE economists. 169 111 the firm’s managers little reason to reduce Tirole has considered a host of other issues, CHEMISTRY LITERATURE expenditures. Indeed, the management specific to different markets. Together 80 might engage in wasteful spending that with Jean-Charles Rochet, he has been a 28 GERMANY benefits only themselves, knowing that leader in the study of platforms operating “On a sombre note, it also comes at a time SWEDEN 53 the firm will be reimbursed. Alternatively, in “two-sided markets”. Here, a platform is when TSE members are commemorating FRANCE the regulator could fix a price that does not a firm that provides services to users on a decade since the passing of Tirole’s NUMBER OF 199 depend on the firm’s cost. The firm then each side. Credit cards provide services not collaborator, Jean-Jacques Laffont, LAUREATES PHYSICS BY DISCIPLINE keeps any reduction in expenditures for only to cardholders but also to merchants who, Tirole noted, “would have deserved SINCE 1901 itself; that is, there are strong incentives who accept these cards. Newspapers not to be with me” in receiving the prize.” 207 Daniel Garrett MEDICINE to reduce spending. Unfortunately, this only attract readers, but also sell advertising www.nobelprize.org/ also means that very efficient firms make space to companies that want to reach

16 www.tse-fr.eu www.tse-fr.eu 17 � � storie� � � histor�

“This is a great day for us, Jean has “Jean Tirole nearly ruined “Jea� i� � mentor, a� � ampl�, a� made the whole profession proud, my teaching career (…) intellectua� companio� an� � dear frien�. Partnership research it’s wonderful.” always very polite, he I a� overwhelme� wit� jo�, emotio� an� Tore Ellingsen, Nobel Prize in Economics repeatedly asked very prid� a� hi� winnin� th� Nobe� Pr� �.” Committee chairman penetrating questions.” Emmanuel Farhi (Harvard), former PhD student Eric Maskin (Harvard), Nobel laureate before the Nobel “Jean has been a tireless institution 2007 & Jean’s PhD advisor “Jean is remarkable. Working with him is builder, establishing Toulouse School like playing tennis against a wall – some he Institut d’Économie Industrielle, a.k.a. “IDEI”, is a bridge between of Economics as a preeminent place six feet away. You work hard on a problem academics and enterprises, both public and private. Business leaders, EDF, a historic partner and exemplary for thought and training in continental and fax something to him one evening only managers, policy-makers and researchers come together to discuss partnership T “It was a very lively partnership” remem- Europe. He is also a terrific mentor and to wake up the next morning to a ten page and analyse the challenges faced by various sectors and provide relevant Off bers Thomas-Olivier Léautier, TSE / IDEI reply with comments, corrections, analyses insights on a wide range of issues. all-round nice guy.” researcher. “Jean really got involved, he the Cuff and extensions, all logically presented and Josh Lerner (Harvard Business School), A lab of ideas founded 25 years ago To help understand the DNA of the Institute, frequently met the heads of EDF in Paris. co-author over last 15 years TSE Mag was at the Stockholm neatly written by hand.” Hervé Ossard, the current director, takes One of them even came to spend a year ceremony to get fi rst hand on the banks of the Garonne river, still Bengt Holmström (MIT), co-author since 1986 us back to the origins of the institute. In in Toulouse, in order to work on matters impressions from the guests. Here focused today on its founding mission: to late 1980s and early 1990s, Jean-Jacques linked to the opening of the electricity “Jea� � rol� an� hi� tea� they are, along with tributes from inform and support companies as they go Laffont was returning from a gap year in market.” At the time, the big question political and business personalities “Jean was my teacher at MIT in the through major economic transformations. hav� fi rml� pinne� Toulous� the United States, where he had formerly among politicians and academics was 1980s. We have been friends and A mission which has greatly benefited from and Jean Tirole’s colleagues. restructuring. Many people thought that o� th� worl� map of economic�. the involvement of its scientific director accomplished his Ph.D. at Harvard University. co-authors ever since. His work on the invisible hand of the markets would O� behalf th� cit�, I � pres� hi� Jean Tirole. Since 1991, he has carefully “He was convinced that it was feasible banking supervision is among the to set up, in Toulouse, a department of solve all the problems. “Jean Tirole was laid down the model and defined the our grea� admiratio�.” “Jean is my role model in best for understanding fi nancial economics based on matching ambitious one of the first to point out the adverse guidelines for partnership-based research Jean-Luc Moudenc, Mayor of Toulouse economics. He’s incredibly crisis. He combines inventiveness excellence with suitable resources, similar effects and to suggest rules to address in economics. stubborn, but then so am I so it’s with great ability to craft models. It’s to how it was done across the Atlantic them. His work has greatly contributed to a productive way of refi ning ideas. very diffi cult to get a paper rejected then. It was he who persuaded the heads the understanding of electricity markets.” He’s also a great friend, and we from a top journal with Jean!” of EDF, amongst whom Marcel Boiteux, share a passion for table tennis.” to commit to a high level partnership over What use is economic theory in all this? Mathias Dewatripont (Vice-governor, Roland Benabou (Princeton), several years. At the time, such a model Since those early days, many other compa- Belgian National Bank), colleague since 1984 co-author since 2002 of research collaboration was unheard nies and organisations have partnered with of in France.” the IDEI for long-term research: Orange, This set-up appealed to Jean Tirole, who La Poste, SCOR, Banque de France... and “I � ten� m� warmes� congratulation� was teaching at the MIT at the time and these are partnerships that go beyond t� Jea� � rol�. � i� Nobe� Pr� � highlight� consequently, he also chose Toulouse sponsorship. over Boston! As Hervé Ossard sees it, partnership-based th� qualit� of researc� i� our countr�. ” All the ingredients were there; the adven- research isn’t just a question of substantial François Hollande, President of the French Republic ture was about to begin... resources dedicated to research. There “I� i� particularl� ... wonder� � thi� year t� “� ank� t� Nobe� pr� ewinner� ank� t� Nobe� pr� “� rol�, Patric� Modian� an� Jea� � Franc� ha� emerge� a� � countr� of grea� knowledg�. I a� s� prou�.” State of Secretary French Fioraso, Geneviève Education & Research Higher for se� th� Pr� � laureat�: h�’� fro� Toulous�, The IDEI develops four distinct activities: “Jean Tirole’s Nobel Prize shows that the ERC our grea� her�, > Basic research: researchers develop formal models to analyse, interpret is clearly funding the best of the best - I’� ver� please�.” researchers who truly push the frontiers of and understand industrial structures and the behaviour of economic agents. knowledge. Europe is and will remain on the Torsten Persson, Nobel Prize > Applied research: researchers at IDEI have developed customized in Economics Committee map when it comes to fi rst-class research.” methodologies designed for decision-making assistance. The Institute secretary & TSE Scientifi c shares its expertise. Carlos Moedas, EU Commissioner for Research, Council chairman Innovation and Science > Conferences and seminars: the IDEI offers an international forum for “ Jean has a great sense of humour and ready smile. One of his favourite expressions is “ plutôt mourir ” , which he has applied in jest to diverse activities such as ultimate Frisbee, certain branches of economics, and eating salad before the main course. ” colleague long-term (Harvard), Fudenberg Drew debates between theorists and practitioners on economic problems. With Jean-Jacques Laff ont, “ With Jean-Jacques Laff Jean has made what I think is the primary research centre in Europe and a model for how economic research should be done. ” Nobel (Berkeley), McFadden L. Daniel colleague 2000 & long-term laureate > Training: IDEI organizes training sessions for company managers in the Hervé Ossard disciplines required to master the workings of the economy and of finance. > Watch video tributes on our Youtube channel: www.tse-fr.eu/fr/media/videos IDEI Director > For extended tributes to and anecdotes about Jean Tirole by his long-time friends and co-authors, check out the latest edition of the TSE student magazine, the TSEconomist www.tseconomist.com/latest-issue.html www.idei.fr 18 www.tse-fr.eu www.tse-fr.eu 19 Mak� wa� for th� artist�!

... The “theory and practice” Nobe� creation�: a� alternativ� are instead in-depth discussions about So during these last 25 years, our role Today, everyone also knows that the to-and-fro: a distinguishing the content of the research. “First, the has been to accompany major changes scientific director accompanying the IDEI feature of the Toulouse companies come up with major ideas in companies, restructuring processes, since its inception is none other than Jean tak� o� � rol�’� wor� that even the most brilliant researchers mergers etc.” Tirole! An actively involved director who approach say they wouldn’t have identified alone. And the IDEI plays another less-known pays close attention to the general aims Who would have thought that Jean Tirole’s research into the regulation Like others before him, Patrick Rey came to Moreover, they sometimes have economists but very important role; training senior of every contract, even those on which of market power could be portrayed via a haute couture dress, a modern Toulouse for a year... and never left! In the 1990s, within their teams, allowing us to work management and disseminating economic he isn’t working himself: “He is a very sculpture or a musical melody? This is exactly what has been achieved via the Jean-Jacques Laffont and Jean Tirole invited him together and hence understand each culture within business but also within thorough, very demanding but also a very fascinating “Nobel creations” exhibition at the Stockholm museum dedicated to come and work on regulation and competition other”. Having said that, there’s no focus high-level civil service, particularly among understanding director.” to Alfred Nobel and his legacy. in the field of telecommunications. He stayed on finding arguments for lobbying: “That’s regulatory authorities, whose decisions And Jean Tirole, the researcher? “He’s very on to become director of the IDEI from 2007 to not where our expertise lies. What we do can have major consequences. active, on the issue of banking regulation For each of this year’s six different Nobel prizes, students from Swedish design and 2011, senior researcher at TSE and co-author of best is answering the question: ‘what does for example, which has been of key concern music colleges have created artistic interpretations of the discoveries and achieve- Jean Tirole on several publications. Here Patrick economic theory say about this topic?’ There’s a ‘before’ and an ‘after’ the since the subprime crisis. If anyone thinks ments of the laureates. The result is something rather special “providing new gateways Rey, freshly back from Stockholm, still moved Then we undertake research in order to Nobel! being a scientific director boils down to just to understanding and opening the way to another creative universe”, as explains Olov Ame- by the recognition of the work on market power provide answers that complement what is Today, with the office flooded with requests holding a title, they’re wrong: Jean plays lin, Nobel Museum Director. and regulation he had been so involved in, tells TSE Mag is proud to present the works of art inspired by Jean Tirole’s work. already known. Through research, we try for appointments and the telephone an invaluable, reassuring role for us. I am us more about it. to estimate what is likely to happen and ringing incessantly, Hervé Ossard stays delighted that he shares the clarity of his accordingly anticipate the consequences. calm: “We’ll sort things out”. As he knows analysis with the IDEI. It is a strength for “It’s a very active Object interpretation perfectly well, managing 10 partnerships our group and as director, I feel very lucky research topic which is Benjamin Curtis, Isa Andersson is quite different to managing 100. to have Jean.” still very much relevant Of course, the Nobel reflects on the entire today. You only need to “The organic-like form represents uncon- community « The Institute’s image has And Jean Tirole, the researcher? open a newspaper to trolled growth, while the grid represents changed. We no longer have to convince “He’s very active, on the issue of banking see issues around these Jean Tirole’s research, his framework, which anyone of the quality of our work. More regulation, for example, which is of key questions, with Google, regulates and orders the markets’ growth.” and more companies are seeking us out! concern since the subprime crisis. If Microsoft or Amazon! It’s But some things don’t change” he adds. We anyone thinks being a scientific director also one of the first sub- are loyal to our partners; we’re not going boils down to just holding a title, they’re Patrick Rey jects the IDEI worked on. to change our agreements, it’s thanks to wrong: Jean plays an invaluable, reassuring TSE / UT1 researcher One of the defining traits them that we exist. Our scientific standard role for us. I am delighted that he shares of the Toulouse approach has not changed any more than our way the clarity of his analysis with the IDEI. It is the way the researchers go back and forth of working... but until today, we were is a strength for our group and as director, between theoretical analysis and reality. Once a practically the only ones to know that.” I feel very lucky to have Jean.” practical issue has been identified, we take a step back from the economic reality so as to analyse it, then we go back to the company with a suitable conceptual framework and relevant empirical ways of looking at it. Musical interpretation “Nowadays, people really listen to Jean... and they listen to us too!” Anna Berglund Thanks to our partners, we have thus been able Fashion interpretation to identify interesting research topics on which “Most inspiration for my On 6 November 2014, Thomas-Olivier Léautier was “It’s extremely rare, as far as I know, that a Univer- Angelica Eichler, Linchao Zhang we have been pioneers! Today, for example, we composition has come sitting in the hemicycle at the French Assemblée sity professor should speak before a Commission are looking at business cooperation in high tech “Drawing inspiration from Jean Tirole’s from regulation, balance, Nationale (parliament) to speak before the of Inquiry. It’s a sign! The scientific excellence of industries. How to choose the best business extensive body of work, we have discussed and Jean Tirole’s thoughts Jean shines on the entire scientific community at Commission of Inquiry on electricity prices. Three combinations to facilitate the adoption of patents the complex problems that arise when you on how companies within TSE. Today, people are keen to hear our views. It former EDF chairmen, Marcel Boiteux, François without taking the risk of encouraging collusion attempt to regulate a dynamic environ- the telecom industry give and take from is a new collective responsibility for us to shoul- Roussely and Henri Proglio had spoken the day or setting off a price war? The mechanism that ment. This inspired us to portray what is one another in a way that benefits both der, because we are more often invited to express before... A mere coincidence? Certainly not. Rather we recommend can be transposed to the com- an inexorable duality within economics, an the market and society. The different melo- ourselves. This new perception of the school by a consequence of the new visibility enjoyed by TSE petition between airlines, for example, or the “on the one hand, on the other hand” that dies of individual instruments are regulated economic and political leaders also steps up the researchers in general and particularly by one who management of copyright... Our conclusions were must simultaneously protect the interests accordingly, and ultimately arrive at the pace for the TSE students: companies know more had as PhD advisor at MIT a certain... Jean Tirole! used by the European Commission for license of both society and the individual.” same phrase in balanced parts.” about us, they are far more willing to open their agreements. So you seen we really do always Thomas-Olivier Léautier doors to our students. That gives them exceptio- come back to reality!” TSE / UT1 researcher nal new opportunities.” www.nobelmuseum.se

20 www.tse-fr.eu www.tse-fr.eu 21 Actors Research and Protection

XA’s primary mission is to protect both its clients and the wider com- faced with increasingly frequent, increasingly research we fund through the AXA Fund for behaviour of economic stakeholders on The funding is pro bono, i.e. no direct return munity against risks. The Group believes that today’s research leads major natural catastrophes, we are able Research. We also have risk management the markets. The fund can finance research is expected, a fact which guarantees the to tomorrow’s improved protection, which is why they founded the to adapt and anticipate. teams who adapt our models to the various contracts like PhDs and post-doctoral work. researchers’ independence. A In medicine, the changes are positive data as and when it appears. It also attributes grants to researchers. So far, we have funded 450 projects AXA Fund for Research in 2007 and signed a partnership with TSE. Its aim: to understand and anticipate risks but also to adapt to regulatory changes and because they have led to longer life It funds thematic chairs and perpetual between 2008 and 2014, giving over 100 expectancy and treatment for previously Is that how the partnership with TSE chairs and makes capital injections into million euros. We have pledged another technological revolutions. Denis Duverne, Deputy CEO of AXA gave us his ana- untreatable illnesses. came about? research institutions. Lastly, the fund 100 million euros for the coming 6 years. lysis of the challenges facing the insurance industry. At the same time, the cost of certain We were among the first companies to supports research projects and makes Today, AXA invests more than any other As 2015 begins, what major challenges is treatments that we cover is changing fast support the TSE Foundation. We work financial contributions to the promotion France-based private company in pro bono the AXA Group facing? and it is quite possible that we will see a closely with Christian Gollier on all topics of researchers’ work. financing of university research. The first challenge is the digital revolution more radical change in life expectancy in related to insurance and more recently, which is changing the industry on every a future which is difficult to predict. we’ve been working on the problem of level. All of our contact with our clients is systemic risk in insurance. It would appear THE AXA FUND SUPPORTS RESEARCH THROUGHOUT THE WORLD changing: the way we communicate, the Insurance uses the law of averages. With a that the theoretical foundations of the new (SEPTEMBER 2014) way clients get information about and highly diversified portfolio, there can be a regulations currently being implemented balance of risks between life expectancy and are not sound. TSE’s role is to produce work purchase the products... AXA WORLD EUROPE There’s also the Big Data revolution. mortality. A last important point: nowadays, which can improve risk analysis. Nowadays, we have access to vast amounts there are lots of new instruments available, I would like to add that we are very proud AXA RF has funded 442 Grants AXA RF Grants: 90M€ connected things which allow each of our to support the institution that nourished 82 Major Partnerships 68 Major Partnerships of information: that changes risk analysis 360 Junior Research Fellowships 317 Fellowships and the information can also help clients clients to become their own ‘risk manager’. a Nobel Prizewinner! change their behaviours so as to reduce If you have a connected bracelet telling The Prize was of course awarded to Jean their exposure to risks. you you haven’t walked enough today or Tirole, but it reflects on the students, teachers a smartphone in your car measuring your and establishments working with TSE. The The second challenge is the very low level driving and telling you when you are not benefits for the school will be huge. of interest rates because of the efforts being careful enough, your behaviour is made by central banks in order to provide going to change for the better! It’s the What led AXA to create the AXA Fund for Denis Duverne liquidity after the 2008 crisis. People chance for us to make our clients realise Research in 2007? Administrator, Deputy CEO, AXA in who invest their savings in life insurance that their best interests and those of their Firstly, we wanted to bring the world of charge of Finance, Strategy and companies that entrust us with the insurance company coincide. business closer to the world of research, and Operations management of some of their assets or because as we see it, research cannot be their pension funds count on us to invest How do you go about adapting to these financed by state funding alone. Then of that money and make it work for them changes? course, we aimed to expand knowledge in AMERICAS www.axa.com/fr/presse with a certain return. What a vast question! When it’s a question the fields linked to our industry, so linked of the climate or new risks like terrorism, to risk. Knowledge reduces uncertainty AXA RF Grants: 4M€ 4 Major Partnerships The 3rd big challenge is regulatory. There we adapt through modelling and through a and thereby makes certain risks ‘insurable’. 23 Fellowships has been a major change in the European certain discernment in the sale of policies. And finally, we wanted to contribute to the AFRICA ASIA PACIFIC & MIDDLE EAST AXA is one of the world’s top rules on insurance company capital, called To grasp the opportunities offered by spread of knowledge to decision-makers AXA RF Grants: 0.06M€ insurance and asset-management Solvability II. What’s more, AXA is also a connected things, we often work with and to the public. We focused our efforts 1 Fellowship (South Africa) AXA RF Grants: 10M€ groups: ‘systemic insurance company’ which means start-ups in order to progress. by excluding the USA where private sector 10 Major Partnerships > 102 million clients, we are subject to even tighter rules. We also research funding is robust. So AXA pledged 19 Fellowships individuals and companies need to adapt to the recent strengthening Do you work with futurists? particular support to pioneering work in the > Present in 56 countries of consumer protection regulations. Those We have a Data Innovation Lab staffed fields of greatest interest to researchers 49 are the three challenges facing us. with scientists who handle large volumes and insurers. 200 M€ DIFFERENT > 157 000 staff members PLEDGED SUPPORTED of data; within that lab we have expertise NATIONALITIES IN 29 The group offering products BETWEEN AMONG COUNTRIES How do phenomena like new technologies, in future forecasting. This is new expertise. What main themes did you focus on? 2008 AND RESEARCHERS and services in three major areas: climate change, medical progress affect We have an AXA Lab in San Francisco We chose three themes liked to our 2020 450 RESEARCH damage insurance, life insurance the insurance industry? which is an observation window onto industry: risks concerning human health, PROJETS and asset management. For the climate, change is gradual so Silicon Valley, where things change fast. environmental risks and socio-economic although it’s true that the world today is We are in contact with scientists whose risks: the behaviour of markets and the www.axa-research.org

22 www.tse-fr.eu www.tse-fr.eu 23 Actors French economists stand out from the crowd

t’s undeniable: economists are very popular in the United States. But what struck Fabien Fieschi when he arrived in Boston was just how well-known I the Toulouse School of Economics founded by Jean-Jacques Laffont was, in a region housing prestigious universities such as Harvard and the Massachusetts Institute of Technology.

The French Consul General, who has held end, we organise networking events, such the position since August 2012, tells us as our ‘Cafés des Sciences’ or ‘Cafés des about the reputation and influence of Entrepreneurs’ and we hold information days TSE and the strength of its position in the on grants and job opportunities in research international competition for excellence both in the region and in France. The recent in teaching and in knowledge. creation of the worldwide ‘France Alumni’ network will further improve our reach. What is the Consulate’s mission in the field of economics, innovation and scientific The Consulate is also active in promoting research? academic cooperation: we can assist The Consulate General of France in Boston institutions with contacts, helping them is our oldest establishment in the United to identify potential establishments for Fabien Fieschi States. It opened in 1779, in the midst of cooperation, as well as drawing up more Fabien Fieschi is a graduate of l’Institut the War of Independence, though if we are complex agreements, such as the creation reality. People in the U.S are more exposed The issues that come to mind are the students on American campuses. More d’Etudes Politiques in Paris. He has still here today; it is not to bear witness to of an international joint research unit on to the economic situation: be it employment, debates on inequalities and taxation, the broadly, I hope that this Nobel Prize will been Advisor to the French Ministry that history, but to play an important role the physics of materials. Finally, since social protection which is often closely organisation and efficiency of the markets encourage higher education establishments of Foreign Affairs, First Secretary in high-level Franco-American cooperation. Boston is a major hub of innovation, linked, or the amount of their capital funded and the efficiency of development policies. to follow the example set by TSE and be in charge of Human Rights at the Boston has built on a long academic tradition particularly in biotechnologies, “big data”, pension which depends on the performance both innovative and ambitious: TSE is not United Nations Organisation in New going back to the foundation of Harvard, or green technologies, the Consulate has of many economic indicators, particularly the only possible template but it shows York and Advisor to French Prime to become one of the main centres of set up various exchange programmes in What changes have you noticed in people’s stock markets, the American employees that in France, we would be wrong to Minister François Fillon’s cabinet. From knowledge production in the world. Today, these fields. view of French economists in general and are encouraged to follow and understand give up the international competition for 2001 to 2006, he was First Secretary the area is home to over 100 universities of TSE in particular, since Jean Tirole was what is happening in the economic arena scientific excellence. at the French Embassy in Tokyo. and colleges, some of which are amongst In the United States, economists are very awarded the Nobel Prize in Economics? and on the markets if they want to be It is mainly the general public’s perception Since 13th August 2012, he has been the most prestigious, like Harvard and the popular, why do you think that is? able to anticipate and avoid unpleasant that will be modified by the fact that French Consul General to Boston. Massachusetts Institute of Technology Knowledge and understanding of eco- (MIT) totalling over 300,000 students. nomics is quite different in the United surprises which can have a major impact Jean Tirole was awarded the Nobel Prize In this environment, the Consulate has States, particularly when it concerns the on their standard of living, their health or in Economics. When I arrived in Boston, www.consulfrance-boston.org several objectives, such as organising and understanding of companies’ activities. their children’s education. I was struck by how widely known the informing the community of French speaking It’s hard to say whether that is due to Economists are therefore listened to; they Toulouse School of Economics was among are not considered as magicians or oracles, economists working for the most prestigious TNIT students, teachers and researchers. To this education or rather to Americans’ daily On the 3 and 4 October 2014, Boston but neither are they generally accused of American institutions. I would go so far as was host to the Toulouse Network having a particular political agenda. French to say that it was a revelation to me. Not for Information Technology (TNIT). economists have an original point of view only is Toulouse School of Economics ‘on The goal of this thematic network, 47 companies benefited from the NETVA (New Technology Venture Accelerator) programme in this economic landscape: they have often the map’, but many of these economists funded by Microsoft and managed by between 2010 and 2014. NETVA is an initiative from the Office for Science and Technology been trained on both continents and have have already visited to attend conferences IDEI is to promote research in economic at the French Embassy in the United States. Its goal is to support young innovative French been exposed to very different economic or as guest professors. sciences in the software industry, companies as they reach for the American market. The winners have an intensive immersion and social systems, consequently, they can The aura around the Nobel should mean particularly their impact on internet 47 week in Boston, in the Silicon Valley (San Francisco) or in Greater Washington (Washington draw attention to problems which may the end of TSE’s status as ‘best kept secret’ WINNING and intellectual properties. DC). In parallel, the Young Entrepreneur initiative (YEI) programme has been set up to support have gone unnoticed on one side of the and interest wider circles, particularly, COMPANIES American start-ups in France. Atlantic, and offer alternative solutions. I hope, among young researchers and

www.netvafrance.com and www.yeifrance.com

24 www.tse-fr.eu www.tse-fr.eu 25 Actors

Target: the top of the league table! The Winners 2014 - Prize for Monetary and Financial Economics

he Bank of France honours researchers who have developed key in Europe and crisis prevention (monetary concepts for the understanding of monetary and financial economics. economics and aggregate liquidity, payment The BdF (Banque de France: Bank of France) has been a partner of the systems, prudential regulation); market T transparency and the process of price Jacques Laffont-TSE Foundation since its creation in 2007, via a three-year convention with the Institut d’Economie Industrielle (Institute of Industrial formation in a low interest rate environment, Economics). This bicentennial institution, which is also France’s central industrial economics of markets and of the bank, plays a major role in supporting research and teaching in Economics. post-market; contagion mechanisms in Anne Le Lorier, First Deputy Governor, tells us more. a heterogeneous system; and finally, the decoupling of economic cycles, the effects results. The first is the scientific of low inflation. supervision of research projects set up by our ‘Bank of France For the second time, the BdF-TSE Senior Monetary and Financial Studies Prize has been awarded to an economist Nobuhiro Kiyotaki and Christian Noyer, Governor of The Bank of France Ivan Werning, Jean Tirole and Ralph Koijen Department’ with the TSE team, whose research has centred on financial notably Thomas Chaney, Patrick frictions. Is that a deliberate sign sent to Fève, Christian Hellwig, Augustin the economics community? Nobuhiro Kiyotaki Iván Werning Ralph S.J. Koijen Landier, Franck Portier and Jean In 2012 we decided to create a series of Senior Prize 2014 Junor Prize World 2014 Junior Prize Europe 2014 Tirole. Three of whom actually left prizes to honour academic researchers the United States to join TSE at who have developed key concepts for our PhD Harvard PhD Harvard PhD University of Tilburg the beginning of our partnership. understanding of monetary and financial Professor of Economics Professor of Economics Professor of Finance University of Princeton University of Princeton The London Business School Meetings take place over 12 days economics which foster improvements in in the year, through two or three economic policy. “I am extremely honored to receive the “It was a great pleasure to receive the ”I am very excited and grateful to receive the workshops. The senior prize was awarded to Professor Banque de France – Toulouse School of BDF-TSE prize and to participate in this BDF - TSE prize this year. I’m also looking What were the reasons behind this The partnership also means that we Nobuhiro Kiyotaki for his work on nominal Economics Senior Prize in Monetary Econo- event. It is interesting to see the colla- forward to the conference in January and partnership between the BdF and TSE? organise research seminars at the forefront rigidities, the foundations of money and mics and Finance. Many parts of the world boration and commitment of these two the visits to the Banque de France and TSE The desire to strengthen economic research of monetary macroeconomics through credit constraints. His work was amazingly are still waiting to recover from the recent institutions towards advancing scientific next year. We hope that our research is help- in France in order to share our expertise our Studies and International Relations cutting edge. More than ten years before financial crisis, including Europe and Japan. economic research with applications to ful to make the risks in insurance markets internationally, expertise which has now Department, with the participation of the Great Recession, his work showed I hope to continue making contributions to policy. This is an area I am very interested more transparent, and to understand the been acknowledged at the highest level by Franck Portier. There are also around ten the importance of financial constraints our better understanding of what causes in, both from a macroeconomic and public implications of regulatory proposals that Jean Tirole’s Nobel Prize. We are very proud! Financial Stability workshops, organised in the spread of macroeconomic crises. financial crises, why long stagnation may finance perspective. I had the pleasure to have been circulated recently. Our recent Our aim is to be a centre of excellence in a by the Financial Stability Department in It was quite logical that central banks follow and how we can avoid such a trap visit Toulouse before and I now look forward work on asset pricing in which study the league table still today dominated by the big coordination with Augustin Landier. Then should turn to his work when it became in the future.” to spending some time again at TSE and impact of institutions on asset markets is American universities. We stand alongside of course there are one or two scientific urgent to develop analysis frameworks getting to know BdF better.” hopefully useful to answer many questions TSE to foster high level research, carried out conferences per year, regular visits from for our non-conventional policies. The involving large changes in institutional hol- by expert teams made up of researchers members of TSE for scientific coaching on works of the junior prize-winners illustrate dings, for instance resulting from changes from France but also from the very best research carried out at the Bank of France the same concern: the price of financial in regulation of insurance companies and universities abroad. We must do all that and the writing of articles to nourish our assets and liquidity risk; adjustments in banks or from large-scale asset purchases we can to attract the best economists and reflection or our publications (“Revue de monetary unions; term premiums and by central banks. Our framework can also Anne le Lorier be used by investors to improve estimates to face the double challenge of keeping la Stabilité Financière”). choice of mortgage loans by homeowners; First Deputy-Governor of The Bank of France, appointed of expected returns and by firms to unders- our most brilliant people while attracting macro-prudential policy and debts. by the Council of Ministers of 4th January 2012. tand the impact of corporate policies on foreign talent. The Bank of France-TSE partnership has Beyond that, central banks must face up to Anne Le Lorier had previously spent most of her career asset prices.” just been renewed for 3 years (2015-2018). several long term challenges. Conceptual at the Ministry of Economy and Finance where she was What are the mutual benefits drawn from What issues should the economists effort must be put into defining a possible Civil Administrator for the Treasury. She has worked on “new normal”, into the changes in inflation the Bank of France-TSE partnership? concentrate on? both national and international questions. For TSE, I suppose that the advantage We have identified a series of priority themes and renewed reflection on the limits to what Application is having access to the world of central for the coming years. This partnership will Central Banks’ actions can achieve and the www.banque-france.fr/la-banque-de-france/ procedure banking, its challenges and issues. For focus on four of them: the study of the size necessary articulation between monetary, organisation/organigramme/anne-le-lorier.html and deadlines: us, this partnership has led to tangible and structure of financial intermediation budgetary and prudential policies.

26 www.tse-fr.eu www.tse-fr.eu 27 Campu� Busines� Tal�

PHILIPPE ALBY

Discover project-based learning in video: youtube.com/tsechannel Thinking outside the box Independent learning On 27 November, Sophie Vermeille gave a “Business Talk” at TSE on “The Legal System and the Development of Alternatives to Bank Credit; Or How roject-based learning is widely developed in Engineering Schools, French Bankruptcy Law has Failed to Adapt to the Evolution of the Economy where from the very fi rst weeks of teaching, students work in groups and Finance”. on projects: building a solar-powered vehicle or a rocket... P For Sophie Vermeille, research centres such of her cases as a lawyer. The striking In French universities, this active lear- which the tutors guided each group and as TSE play a leading role in promoting differences between a more flexible ning-process started to come into use four followed the progress of the projects. The 217 these changes in a country’s regulatory American regulation and the rigid, outdated or five years ago. Even if there can be no goal was to guide rather than to teach. We students framework. Through the encouragement French system caught her attention. Ever also required some work on data – we took part in the experiment. tangible, physical results, the principle is of interdisciplinary research in law and since, Sophie Vermeille has studied the the same: allowing the students to work considered it important that the students economics, they create synergies of high reasons behind the inflexibility of French independently. Philippe Alby, researcher see the link between theory and practice. interest to public authorities. bankruptcy law, and how it could be at TSE, lecturer and head of pedagogical improved. In her view, French law is too innovation, reviews the first experiments What does it teach the students? What Since the beginning of the crisis in 2007, favorable to shareholders. Based on a carried out at the school. are the advantages of this type of 58 a large number of analysts have predicted traditional model of firms, now obsolete, methodology? project groups a reduction of the banks contribution to it focuses excessively on preserving jobs What is project-based learning exactly, As it’s one of the first things the students Philippe Alby made up of 3 or 4 students of Researcher at TSE / UT1 the European economy. This evolution and confuses preserving a business’ and how was it set up at TSE? do at the school, it allows them to get to different nationalities from the invites us to re-examine French law and its assets with preserving its legal entity. This ‘active’ learning is based on the idea know each other. They then learn to work We had to say: right, it’s your turn! Seve- various specialised fields (Economics, impact on the development of alternative Sophie Vermeille and her think-tank that students will find it much easier to in a group, without having decided who to ral of them were rather disorientated, but Economics and Mathematics, grasp and master knowledge and concepts work with, which is another constraint to I think they really grew in terms of inde- Economics and Law) carried out one methods to traditional bank financing. In advocate for a reform of French bankruptcy if they go and find them themselves. We set be dealt with. They learn to do research pendence and curiosity. When you get a project each. France, and in Europe, investors currently law both from a law and economics ourselves a first goal: let them get to know and to use academic literature or empi- curious, autonomous student, you’re not perceive a climate of legal uncertainty, as a perspective. In cases of insolvency, the each other through group work. Then, we rical data. far from having an excellent one! consequence, companies have difficulties goal should be first to create and preserve decided on a theme – this year, it was the Of course they learn to define their topic accessing to credit, and when they do, it as much value as possible, and only after labour market. The students had to come themselves, which is, I think, the most How did the students react to this type is at a high cost. This situation has effects reallocate such value. up with the topic they wanted to work difficult part for them. Finally, they deve- of teaching technique? on the country’s innovation and business on, which was a new exercise for them. lop their writing skills drafting a concise The first sessions were rather laborious. Feedbacks development. For Sophie Vermeille, using a joint law and Next, we organised 1.5 hour sessions each project document, and their presentation Some of them were very anxious at not economics perspective is the best way to week from September to November, during skills by giving an oral presentation, which knowing what to do, nor how to do it... “We had to use our theoretical Sophie Vermeille began looking into this comprehend and tackle this issue. Although is another novel exercise for them. They were just left, almost entirely alone, knowledge to solve ‘real’ problems issue while confronted with the Chapter often branded as a “free-market” tool, it Through this type of pedagogy, the students with a tutor whose role was simply to and we almost felt like real, 11 of United States bankruptcy law in one has great potential if used the right way. learn to evaluate what is or isn’t possible guide them; it was completely different to to get done, because from the beginning, what they were used to. On the contrary, professional economists.” they had no way of knowing whether others were very enthusiastic, kean to get Sophia, 3rd year student such a topic could be dealt with in involved in vast projects or work on topics the time available. They also learn that would usually have required one or “I reall� appreciate� to make the link between ‘real’ even two PhD students to be resolved! Sophie Vermeille economics and the theory they But they got to grips with their subject th� fac� tha� al� th� fi eld� wer� have been taught since their and I think overall, they worked well. m� e� together s� tha� I wa� Sophie Vermeille is a researcher at the Paris II arrival at TSE and lastly, they Some even said they would have liked to University. She holds a Master’s degree from Paris II learn to use their knowledge have more time to go into greater depth! workin� wit� bot� Frenc� and from London King’s College, and is preparing a of microeconomics, macroe- I found that what they produced was of an� foreig� student�.” PhD in Law and Economics from Paris II. Her research conomics and statistics. very good quality. interests lie principally in corporate finance, personal Charles, 3rd year student Since their early childhood, They also learned what we call ‘soft skills’: and corporate insolvency law, corporate law, banking these students have been how to work in a group; how to measure law and law of security interest. formatted: they expect the whether something is possible; how to “It was interesting to be She is also a French qualified lawyer at the Paris office teacher to pass on knowledge formulate a question; what to look for; handling raw data to draw out of DLA Piper. She founded and manages the “Rules for for them to learn and reproduce how to identify the information you need... Growth” institute, a French think tank where faculty during an exam. We had to decons- without realising it, they made tremendous understandable information.” members from various universities work together with truct that. progress. Karim, 3rd year student practitioners mainly in the field of corporate finance.

28 www.tse-fr.eu www.tse-fr.eu 29 Campu� Training Tomorrow’s Experts Industries (manufacturières, Graduate recruitment fi guresextractives et autres)

The success rate for TSE graduates is high. That is the conclusionAgriculture, of a 30 month study carried out by the French Observatory of Training and sylvicultureRecruitment. et culture

Information Administration publique et information (hors enseignement) % % 15-20 2% 2 % Commerce % 90 % of graduates go into academia; 7 24 the others go into careers % in business or the public sector. 7 of graduates found a job between 3 and 6 months after graduation

Transports (not including further studies). et logistiques % % 9 34 % 17 Autres activités of graduates were directly % de service taken on by the company 13 % % Activitéswhere spécialisées, they did their 2nd year 80% 50 scientifiquesMaster’s et techniques degree internship. 15 of graduates find a first job abroad; of graduates consider that their job is suited 88% go straight into management. to their careerActivités plan financières and their education. et d’assurance Our founders

% % Information and Follow us Where are they now? 7 7 communication www.flickr.com Some examples of careers Business /125305412@N02 our graduates go into: % Agriculture, 9 2% forestry, (Source OFIP) fishing www.cnrs.fr www.ehess.fr Logistics As a TSE grad, you can be a: % research manager, consultant, analyst, 2 Industries % statistician, head of risk management, % 24 www.debate. www.twitter.com market economist, lecturer-researcher,... 13 tse-fr.eu /TSEinfo www.inra.fr www.ut-capitole.fr Public administration Specialised scientific or (other than teaching) technical activities % Learn how TSE prepares its % 17 students for successful careers, 15 via our quick presentation video: www.facebook.com Other service activities www.youtube.com Finance and Insurance youtube.com/tsechannel /ecole.economie.toulouse /TSECHANNEL

30 www.tse-fr.eu debate.tse-fr.eu TSE DEBATE THE NEW BLOG FROM TSE

PUBLIC POLICY DEVELOPMENT FINANCE ENERGY TRANSITION

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