Of all Nobel Prize disciplines, it is probably Economics after Medicine that touches the everyday life of mankind. The medical advances that won Nobels were truly path-breaking and contributed to the saving and betterment of millions of lives. In 1900, the world’s life expectancy was 30 years. A hundred years later, in 2000, it had risen to 68. In 2020 it is 72. That we live longer and healthier lives now is primarily owed to the advances in Medicine. This contribution is reflected in the roster of Nobel Prize winners. The very first prize in 1901 went to Adolf von Behring for his work relating to serum therapy for diphtheria -- then a major universal killer. The following year it was awarded to Ronald Ross in uncovering the mysteries of malaria while working in a small dispensary in Secunderabad. The world population in 1900 was 1.6 billion and an estimated 5.5 million died that year of malaria. The world population in 2020 is inching towards eight billion and last year it is estimated that 440,000 people died due to malaria. It gives you an idea about how much we owe to the work of Sir Ronald Ross. Similarly, there were the discoveries of Penicillin, Streptomycin and Insulin that altered longevity and the quality of life. The discoveries of blood groups, immunological responses, DNA, cholesterol and fatty acid metabolism were rewarded. The only great discovery that eluded Nobel recognition was that of the polio vaccine by Jonas Salk.
But the Nobel Prizes for Economics can claim no such roster. All the great thinkers and pathbreakers like Adam Smith, John Stuart Mill, David Ricardo, Alfred Marshall and others belonged to an earlier age. Even the greats like Lord Keynes and Joseph Schumpeter whose philosophies still drive modern economics preceded the age of Nobel economics. A few like Paul Samuelson, Simon Kuznets, Kenneth Arrow, Wassily Leontief and Fredrich Hayek straddled the earlier era. But then it’s a relatively recent prize, having been instituted only in 1968 by the Swedish central bank. But with the great seminal works and discoveries already been done, the new pathways to greatness is increasingly due to more esoteric work and research. For instance, in 2017, Rosbash, Young and Hall got the medicine Nobel for “the molecular mechanisms controlling the circadian rhythm” and Ratcliffe, Semenza and Kaelin won it for “how cells sense and adapt to oxygen availability”. Likewise, we see a similar tendency in economics on the small, rather than the seminal, and the esoteric rather than the extensive development of knowledge. The pursuit of truths takes us from the main veins into the capillaries of knowledge.
The 2020 Economics prize was awarded to Paul R. Milgrom and Robert B. Wilson of Stanford University “for improvements to auction theory and inventions of new auction formats”. It is as if a medical researcher was getting a Nobel for work, say, in an aspect of Otolaryngology such as the act of swallowing. It is important, but how widespread are problems related to swallowing? Auction theory is like that. It is an applied branch of economics which deals with how auction markets and people act in them. We in India know something about auctions, mainly due to the exertions of Vinod Rai, the RSS, India Against Corruption, Subramaniam Swamy, S. Gurumurthy and that great preceptor, Baba Ramdev. They didn’t know or care to know that “auction theory” is not just about how much the State got, but also about how much did the people get! In 2010, according to Vinod Rai’s asinine projections, the difference between the money collected and that mandated to be collected was estimated at Rs 1.76 lakh crores, or $25 billion, based on 2010 3G and broadband spectrum auction prices. The number crunchers in the CBI did even better. In the chargesheet it filed on April 2, 2011 the loss was pegged at Rs 3.1 lakh crores, or $43 billion. It caused a political upheaval. Inspired by such visions, the Narendra Modi government expected India’s largest spectrum sale in 2016 to fetch it Rs 5.63 lakh crores. Instead it got only Rs 65,790 crores.
The Royal Swedish Academy of Sciences release states that this year’s laureates, Paul Milgrom and Robert Wilson, have studied how auctions work and have used their insights to design new auction formats for goods and services that are difficult to sell in a traditional way, such as radio frequencies. Robert Wilson developed the theory for auctions of objects with a common value -- a value which is uncertain beforehand but, in the end, is the same for everyone. Examples include the future value of radio frequencies or the volume of minerals in a particular area. Wilson also showed why rational bidders tend to place bids below their own best estimate of the common value -- they are worried about the winner’s curse: that is, about paying too much and losing out. Paul Milgrom formulated a more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder. He analysed the bidding strategies in several well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other’s estimated values during bidding. Both seem to suggest that open bidding with all bids in the open may fetch the best prices. But is then a State concerned only with the highest prices or must it also be concerned with the overall benefits? For instance, lower spectrum prices would mean cheaper call and Internet usage time leading to greater usage and greater economic benefits.
The winners last year, Abhijit Banerjee and Esther Duflo, won it ironically enough for their study in eastern Odisha of a scheme to replace open-fire cooking used by the world’s poorest people with more efficient, less polluting stoves. The duo studied the reasons for its flop. The planners had flopped in their conceptions. I don’t think Narendra Modi’s genius factored the more mundane considerations when his government launched its colossal public toilets scheme, which we now know is also a spectacular flop. Open defecation is once again rampant. It’s little wonder that Mr Modi has given the duo a big avoid. But he has also by and large given Vinod Rai the avoid, probably now realising how farcical his determination of auction value for 2G spectrum was?