Jacques Drèze
Encyclopedia
Jacques H. Drèze is a Belgian economist noted for his contributions to economic theory, econometrics
, and economic policy
as well as for his leadership in the economics
profession
. Drèze was the first President of the European Economic Association
in 1986 and was the President of the Econometric Society
in 1970.
Jacques Drèze is also the father of five sons. One son is the economist, Jean Drèze
, who is known for his work on poverty
and hunger
in India
(some of which has been in collaboration with Amartya K. Sen); another son, Xavier Drèze, is professor of Marketing
at UCLA.
in shaping policy
, naturally using Bayesian
econometrics
and mathematical optimization. This vision is expressed in Drèze's 1970 Presidential Address to the Econometric Society
:
These sentences describe the research program at a research institute that was founded by Drèze, CORE, the Center for Operations Research and Econometrics, at the Université catholique de Louvain. CORE hosts economists, econometricians, game theorists and operations research
ers.
In implementing this three-part program, Drèze has concentrated on economic theory but has also contributed to econometrics
and optimization. Drèze's main work consists mostly of theoretical and applied economics, spanning microeconomic and macroeconomic issues. His theoretical work often uses general equilibrium theory. The macroeconomic work ranges over theory, empirical econometrics
, and economic policy
.
Drèze has contributed work on decision theory
and Bayesian
econometric methods. Drèze has also written articles on game theory
(37, 53, 75), mathematical programming
(14, 35) and stability
of dynamical systems (45, 47).
” in subsequent work. Such problems of moral hazard have been discussed by Jacques Drèze in his dissertation, leading to the 1961 paper (8), whose analysis was generalized in 1987 (76), and simplified in 2004 (123). Drèze's theory allows for preferences depending on the state of the environment. Rational behaviour is again characterised by subjective expected utility maximisation, where the utility is state-dependent, and the maximisation encompasses the choice of an optimal subjective probability from an underlying feasible set.
, a natural application of long-standing interest to economists concerns the provision of safety, for instance through road investments that are aimed at saving lives. In this area, Jacques Drèze introduced in 1962 (12) the “willingness-to-pay
” approach, which is now widely adopted. That approach rests on individual preferences aggregated as per the theory of public good
s. The willingness to pay approach thus fits squarely in economic theory.
The book is organised in seven parts, covering successively decision theory
, market allocation, consumption
, production
, the firm under incomplete markets
, labor and public decisions. Under market allocation comes an important paper (21) on the interpretation and properties of the general equilibrium
model pioneered in Arrow (1953). The more significant piece in the next part is a classic paper with Franco Modigliani
on savings and portfolio
choice under uncertainty
(28). There follow three papers on industry equilibrium
(17, 42, 62).
context. His 1975 paper (36, circulated in 1971) introduces the so-called “Drèze equilibrium” at which supply (resp. demand) is constrained only when prices are downward (resp. upward) rigid, whereas a preselected commodity (e.g. money) is never rationed. Existence is proved for arbitrary bounds on prices, through an original approach repeatedly used ever since. That paper is a widely cited classic. It was followed by several others (51, 55, 63, 75), exploring properties of the new concept. Of particular significance to future developments is a joint paper with Pierre Dehez (55), which establishes the existence of Drèze equilibria with no rationing of the demand side. These are called “supply-constrained equilibria”. They correspond to the empirically relevant macroeconomic situations.
and Herschel Grossman
(1971) and then studied extensively by Edmond Malinvaud
(1977). That model invited empirical estimation
. The new statistical
challenges posed by “disequilibrium econometrics
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988). Following a joint paper by Drèze and Sneessens (71), a major project (the European Unemployment Program) directed by Jacques Drèze and Richard Layard led to estimation of a common disequilibrium model in ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
on supply-constrained equilibria at competitive prices, and then with the dissertation of Jean-Jacques Herings at Tilburg (1987, 1996). In both cases, there appear results on existence of a continuum of Drèze equilibria.
Following the work of Roberts and Herings, Drèze (113) proved existence of equilibria with arbitrarily severe rationing of supply. Next, in a joint paper with Herings and others (132), Drèze established the generic existence of a continuum of Pareto-ranked supply-constrained equilibria for a standard economy with some fixed prices.
An intuitive explanation of that surprising result is this: if some prices are fixed and the remaining are flexible, the level of the latter prices relative to the former introduces a degree of freedom that accounts for the multiplicity of equilibria; globally, less rationing is associated with a higher price level; the multiplicity of equilibria thus formalises a trade-off between inflation and unemployment, comparable to a Phillips curve
. In this analysis, the continuum is interpreted as reflecting co-ordination failures, not short-run price dynamics à la Phillips. The fact that price-wage rigidities can sustain co-ordination failures adds a new twist to explanations of involuntary unemployment. At the same time, multiple equilibria create problems for the definition of expectations, and introduce a new dimension of uncertainty.
Drèze gave a public lecture on "Human Capital and Risk Bearing" (48). The innovative idea here is the transposition of the reasoning underlying the theory of “implicit labour contracts” to the understanding of wage rigidities and unemployment benefits. When markets are incomplete, so that workers cannot insure the risks associated with their future terms of employment, competitive clearing of spot labour markets is not second-best efficient: wage rigidities cum unemployment benefits offer scope for improvement.
The lecture develops this theme informally. The conclusion, stated with specific reference to labour markets, has more general validity. It applies to any situation where the uninsurable uncertainty about future prices results in welfare costs. Even though price rigidities entail a loss of productive efficiency, this can be more than offset by a gain of efficiency in risk-sharing. What may be specific to the labour market is the realistic possibility of controlling (minimum) wages and organising unemployment compensation. The analysis implies that the claim that wage flexibility is efficient requires qualification.
For “price-wage rigidities", the presence of rigidities receives an explanation in Section Seven of Drèze's lecture: Under incomplete markets, wage rigidities contribute to risk-sharing efficiency. The theme of the 1979 lecture (48) is taken up in several papers (91, 95, 101), exploring the definition and implementation of second-best wage rigidities.
Since then, Jacques Drèze has examined ways of reconciling flexibility of labour costs to firms with risk-sharing efficiency of labour incomes, if needed through wage subsidies (119, 125, 131).
" and to consider the "macroconomic consequences of microecononomics", and Drèze had contributed to the latter project of macroeconomic consequences of microeconomics
In the early seventies, motivated by the potential role of price rigidities for enhancing risk-sharing efficiency, Jacques Drèze undertook to define equilibria with price rigidities and quantity constraints and to study their properties in a general equilibrium
context. His 1975 paper (36, circulated in 1971) introduces the so-called “Drèze equilibrium” at which supply (resp. demand) is constrained only when prices are downward (resp. upward) rigid, whereas a preselected commodity (e.g. money) is never rationed. Existence is proved for arbitrary bounds on prices, through an original approach repeatedly used ever since. That paper is a widely cited classic. It was followed by several others (51, 55, 63, 75), exploring properties of the new concept. Of particular significance to future developments is a joint paper with Pierre Dehez (55), which establishes the existence of Drèze equilibria with no rationing of the demand side. These are called “supply-constrained equilibria”. They correspond to the empirically relevant macroeconomic situations.
In the meantime, Jean-Pascal Bénassy (1975) and Yves Younès (1975) had approached the same problem from a macroeconomic angle, for the more restrictive case of fixed prices. There developed a lively interest in fixed price economies, and specifically in a three-good macroeconomic model, first formulated by Robert Barro
and Herschel Grossman (1971) and then studied extensively by Edmond Malinvaud
(1977). That model invited empirical estimation
. The new statistical
challenges posed by “disequilibrium econometrics
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988). Following a joint paper by Drèze and Sneessens (71), a major project (the European Unemployment Program) directed by Jacques Drèze and Richard Layard
led to estimation of a common disequilibrium model in ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
The next steps in the theoretical research came with the work of John Roberts
on supply-constrained equilibria at competitive prices, and then with the dissertation of Jean-Jacques Herings at Tilburg (1987, 1996). In both cases, there appear results on existence of a continuum of Drèze equilibria. Following these leads, Drèze (113) proved existence of equilibria with arbitrarily severe rationing of supply. Next, in a joint paper with Herings and others (132), the generic existence of a continuum of Pareto-ranked supply-constrained equilibria was established for a standard economy with some fixed prices. An intuitive explanation of that surprising result is this: if some prices are fixed and the remaining are flexible, the level of the latter prices relative to the former introduces a degree of freedom that accounts for the multiplicity of equilibria; globally, less rationing is associated with a higher price level; the multiplicity of equilibria thus formalises a trade-off between inflation and unemployment, comparable to a Phillips curve
.
Two young French economists, Jean-Pascal Bénassy (1975) and Yves Younès (1975), approached the same problem from a macroeconomic angle, for the more restrictive case of fixed prices. There developed a lively interest in fixed-price economies, and specifically in a three-good macroeconomic model, first formulated by Robert Barro
and Herschel Grossman (1971) and then studied extensively by Edmond Malinvaud
(1977).
That model invited empirical estimation
. The new statistical
challenges posed by “disequilibrium econometrics
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988), whose dissertations were published and widely read. Drèze and Sneessens proposed and estimated a disequilibrium model of Belgium's open economy (71). This model became the prototypical model estimated by the European Unemployment Programme, which under the guidance of Drèze and Richard Layard
developed similar models for ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
in the 1970s, Jacques Drèze worked with Franco Modigliani
on macroeconomic policies. There resulted a paper (56), which contains some methodological innovations (an early formulation of the “union-wage model”, and Bayesian
synthesis
of classical estimates from several models). It also contains an innovative discussion of work sharing, a topic to which Drèze returned in (73).
In the 1980s and early 1990s, Drèze wrote about the policy
front, campaigning for two-sided policies of demand
stimulation
and supply-side restructuring
(100). With Edmond Malinvaud
, Drèze organized a group of thirteen Belgian and French economists who wrote “Growth and employment: the scope for a European initiative” (103, 104): This position paper advocated an ambitious program of public investments coupled with elimination of social security
contributions by employees on minimum wages. That paper has influenced the programs of reduced contributions on low wages introduced recently in several countries, especially France
and Belgium
.
The logic of these two-handed policies stands out more sharply in the light of the work on co-ordination failures (124, section 6). These failures are more naturally remedied through demand stimulation. But the failures are apt to be recurrent, so that deficit spending
could lead to continued growth of the public debt. Accordingly, demand stimulation should take the form of socially profitable investments, with returns covering the debt service. Substituting profitable investments and variable social security
contributions for deficit spending
and straight wage
rigidities
, the proposed two-handed policies differ from either orthodox Keynesianism or New Keynesian policies.
, which views problems of statistical decision as no different from other decision problems, and problems of statistical inference
as concerned with the revision of subjective probabilities on the basis of observations.
Bayesian analysis of structural econometric models raises specific difficulties, linked to the so-called “identification problem
”, readily illustrated by a single market: we observe prices and quantities at the intersection of supply and demand
, whereas we wish to estimate
the demand and supply curves. The development of suitable Bayesian methods
for this problem followed circulation in 1962 of a Discussion Paper by Jacques Drèze, fully developed in several subsequent papers (34, 39, 41, 61). The “Drèze Prior” is introduced in (39).
As expressed by Robert Aumann
, CORE is “a unique breeding ground; a place where cross-fertilisation leads to the conception of new ideas, as well as a womb – a warm, supportive environment in which these ideas can grow and mature”. The research output at CORE since 1966 consists to date of some 110 books, 125 doctoral dissertations, 1700 published articles; Discussion Papers now average 85 per year.
Also, CORE has served as a model, emulated in other European countries, often at the hands of former CORE members or visitors: Bonn, for GREQAM in Marseille, CentER at Tilburg or Delta in Paris.
These ideas were realised under EDP, where several universities organise a joint doctoral program, with all students attending at least two institutions and having access to supervisors from both. Some 120 students have graduated under this program, which again has been emulated by others in Europe.
(Belgium
) in 1929, Jacques Drèze did undergraduate economics at the nearby Université de Liège
, and then a Ph.D.
at Columbia University
, with a thesis on “Individual Decision Making under Partially Controllable Uncertainty” supervised by William Vickrey
. After a first academic job at Carnegie Mellon University
in Pittsburgh, he joined Université Catholique de Louvain
in 1958, and has been there ever since---apart from visiting appointments at Northwestern University
, the University of Chicago
, and Cornell University
---until his retirement from teaching and administration in 1989. Since his nominal retirement, he remains active in research.
Jacques Drèze has five sons including the economist and anti-hunger activist Jean Drèze
, who has collaborated on three books with Amartya K. Sen. Another son, Xavier Drèze, is a marketing professor at UCLA.
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
, and economic policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
as well as for his leadership in the economics
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
profession
Profession
A profession is a vocation founded upon specialized educational training, the purpose of which is to supply disinterested counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain....
. Drèze was the first President of the European Economic Association
European Economic Association
The European Economic Association is a professional academic body which links European economists. It was founded in the mid-1980s. Its first annual congress was in 1986 in Vienna, Austria...
in 1986 and was the President of the Econometric Society
Econometric Society
The Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
in 1970.
Jacques Drèze is also the father of five sons. One son is the economist, Jean Drèze
Jean Drèze
Jean Drèze is a development economist who has been influential in Indian economic policymaking. He is a naturalized Indian of Belgian origin. His work in India include issues like hunger, famine, gender inequality, child health and education, and the NREGA...
, who is known for his work on poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
and hunger
Hunger
Hunger is the most commonly used term to describe the social condition of people who frequently experience the physical sensation of desiring food.-Malnutrition, famine, starvation:...
in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
(some of which has been in collaboration with Amartya K. Sen); another son, Xavier Drèze, is professor of Marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
at UCLA.
Decisions informed by economic theory, statistics, and optimization
Drèze's vision of economics emphasizes the normative role of economic theoryMathematical economics
Mathematical economics is the application of mathematical methods to represent economic theories and analyze problems posed in economics. It allows formulation and derivation of key relationships in a theory with clarity, generality, rigor, and simplicity...
in shaping policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
, naturally using Bayesian
Bayesian statistics
Bayesian statistics is that subset of the entire field of statistics in which the evidence about the true state of the world is expressed in terms of degrees of belief or, more specifically, Bayesian probabilities...
econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
and mathematical optimization. This vision is expressed in Drèze's 1970 Presidential Address to the Econometric Society
Econometric Society
The Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
:
"We should now regard as a realistic challenge the formal analysis of decision problems in economics, resting on a specification of ends and means firmly rooted in economic theory, incorporating a probabilistic treatment of economic information, and making use of the possibilities offered by mathematical programming techniques to compute optimal policies."
"We should prepare ourselves to do better: first, by relating more tightly the specification of the criterion function to general economic theory ...; second, by treating in probabilistic terms all the unknown parameters of the model, instead of proceeding conditionally on point estimates for some of these; and third, by searching for optimal decision rules by mathematical programming techniques."
These sentences describe the research program at a research institute that was founded by Drèze, CORE, the Center for Operations Research and Econometrics, at the Université catholique de Louvain. CORE hosts economists, econometricians, game theorists and operations research
Operations research
Operations research is an interdisciplinary mathematical science that focuses on the effective use of technology by organizations...
ers.
In implementing this three-part program, Drèze has concentrated on economic theory but has also contributed to econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
and optimization. Drèze's main work consists mostly of theoretical and applied economics, spanning microeconomic and macroeconomic issues. His theoretical work often uses general equilibrium theory. The macroeconomic work ranges over theory, empirical econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
, and economic policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
.
Drèze has contributed work on decision theory
Decision theory
Decision theory in economics, psychology, philosophy, mathematics, and statistics is concerned with identifying the values, uncertainties and other issues relevant in a given decision, its rationality, and the resulting optimal decision...
and Bayesian
Bayesian statistics
Bayesian statistics is that subset of the entire field of statistics in which the evidence about the true state of the world is expressed in terms of degrees of belief or, more specifically, Bayesian probabilities...
econometric methods. Drèze has also written articles on game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
(37, 53, 75), mathematical programming
Mathematical Programming
Mathematical Programming, established in 1971, and published by Springer Science+Business Media, is the official scientific journal of the Mathematical Optimization Society. It currently consists of two series: A and B. The "A" series contains general publications. The "B" series focuses on topical...
(14, 35) and stability
Stability theory
In mathematics, stability theory addresses the stability of solutions of differential equations and of trajectories of dynamical systems under small perturbations of initial conditions...
of dynamical systems (45, 47).
Contributions to economics
Drèze's contributions to economics combine policy-relevance and mathematical techniques.
"Indeed, models basically play the same role in economics as in fashion: they provide an articulated frame on which to show off your material to advantage ...; a useful role, but fraught with the dangers that the designer may get carried away by his personal inclination for the model, while the customers may forget that the model is more streamlined than reality."
Preferences depending on the state of nature
Between games of strategy and games against nature, there remains a middle ground where uncertainties are partially controllable by the decision-maker---situations labelled “games of strength and skill” by von Neumann and Morgenstern, or “moral hazardMoral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
” in subsequent work. Such problems of moral hazard have been discussed by Jacques Drèze in his dissertation, leading to the 1961 paper (8), whose analysis was generalized in 1987 (76), and simplified in 2004 (123). Drèze's theory allows for preferences depending on the state of the environment. Rational behaviour is again characterised by subjective expected utility maximisation, where the utility is state-dependent, and the maximisation encompasses the choice of an optimal subjective probability from an underlying feasible set.
Willingness to pay
With reference to state-dependent preferences and moral hazardMoral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
, a natural application of long-standing interest to economists concerns the provision of safety, for instance through road investments that are aimed at saving lives. In this area, Jacques Drèze introduced in 1962 (12) the “willingness-to-pay
Willingness to pay
In economics, the willingness to pay is the maximum amount a person would be willing to pay, sacrifice or exchange in order to receive a good or to avoid something undesired, such as pollution...
” approach, which is now widely adopted. That approach rests on individual preferences aggregated as per the theory of public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
s. The willingness to pay approach thus fits squarely in economic theory.
Essays on Economic Decisions Under Uncertainty
The work of Jacques Drèze on the economics of uncertainty through the mid-eighties is collected in his volume of Essays on Economic Decisions under Uncertainty (B2), published in 1987.The book is organised in seven parts, covering successively decision theory
Decision theory
Decision theory in economics, psychology, philosophy, mathematics, and statistics is concerned with identifying the values, uncertainties and other issues relevant in a given decision, its rationality, and the resulting optimal decision...
, market allocation, consumption
Consumer theory
Consumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...
, production
Production theory basics
Production refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some...
, the firm under incomplete markets
Incomplete markets
In economics, incomplete markets refers to markets in which the number of Arrow–Debreu securities is less than the number of states of nature...
, labor and public decisions. Under market allocation comes an important paper (21) on the interpretation and properties of the general equilibrium
General equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...
model pioneered in Arrow (1953). The more significant piece in the next part is a classic paper with Franco Modigliani
Franco Modigliani
Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
on savings and portfolio
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
choice under uncertainty
Uncertainty
Uncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...
(28). There follow three papers on industry equilibrium
Industrial organization
Industrial organization is the field of economics that builds on the theory of the firm in examining the structure of, and boundaries between, firms and markets....
(17, 42, 62).
General equilibrium economics with price rationing: Drèze equilibria
Price rigidities
In the early seventies, motivated by the potential role of price rigidities for enhancing risk-sharing efficiency, Jacques Drèze undertook to define equilibria with price rigidities and quantity constraints and to study their properties in a general equilibriumGeneral equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...
context. His 1975 paper (36, circulated in 1971) introduces the so-called “Drèze equilibrium” at which supply (resp. demand) is constrained only when prices are downward (resp. upward) rigid, whereas a preselected commodity (e.g. money) is never rationed. Existence is proved for arbitrary bounds on prices, through an original approach repeatedly used ever since. That paper is a widely cited classic. It was followed by several others (51, 55, 63, 75), exploring properties of the new concept. Of particular significance to future developments is a joint paper with Pierre Dehez (55), which establishes the existence of Drèze equilibria with no rationing of the demand side. These are called “supply-constrained equilibria”. They correspond to the empirically relevant macroeconomic situations.
Macroeconomic consequences of microeconomics
In the meantime, Jean-Pascal Bénassy (1975) and Yves Younès (1975) had approached the same problem from a macroeconomic angle, for the more restrictive case of fixed prices. There developed a lively interest in fixed price economies, and specifically in a three-good macroeconomic model, first formulated by Robert BarroRobert Barro
Robert Joseph Barro is an American classical macroeconomist and the Paul M. Warburg Professor of Economics at Harvard University. The Research Papers in Economics project ranked him as the 4th most influential economist in the world as of August 2011 based on his academic contributions...
and Herschel Grossman
Herschel Grossman
Herschel I. Grossman was an economist best known for his work on general disequilibrium with Robert Barro in the 1970s and later work on property rights and the emergence of the state....
(1971) and then studied extensively by Edmond Malinvaud
Edmond Malinvaud
Edmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
(1977). That model invited empirical estimation
Estimation theory
Estimation theory is a branch of statistics and signal processing that deals with estimating the values of parameters based on measured/empirical data that has a random component. The parameters describe an underlying physical setting in such a way that their value affects the distribution of the...
. The new statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
challenges posed by “disequilibrium econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988). Following a joint paper by Drèze and Sneessens (71), a major project (the European Unemployment Program) directed by Jacques Drèze and Richard Layard led to estimation of a common disequilibrium model in ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
Supply-constrained equilibria
The next steps in the theoretical research came with the work of John RobertsDonald John Roberts
Donald John Roberts is the John H. and Irene S. Scully Professor of Economics, Strategic Management and International Business at the Stanford Graduate School of Business . He has been a member of the Stanford faculty since 1980...
on supply-constrained equilibria at competitive prices, and then with the dissertation of Jean-Jacques Herings at Tilburg (1987, 1996). In both cases, there appear results on existence of a continuum of Drèze equilibria.
Following the work of Roberts and Herings, Drèze (113) proved existence of equilibria with arbitrarily severe rationing of supply. Next, in a joint paper with Herings and others (132), Drèze established the generic existence of a continuum of Pareto-ranked supply-constrained equilibria for a standard economy with some fixed prices.
An intuitive explanation of that surprising result is this: if some prices are fixed and the remaining are flexible, the level of the latter prices relative to the former introduces a degree of freedom that accounts for the multiplicity of equilibria; globally, less rationing is associated with a higher price level; the multiplicity of equilibria thus formalises a trade-off between inflation and unemployment, comparable to a Phillips curve
Phillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...
. In this analysis, the continuum is interpreted as reflecting co-ordination failures, not short-run price dynamics à la Phillips. The fact that price-wage rigidities can sustain co-ordination failures adds a new twist to explanations of involuntary unemployment. At the same time, multiple equilibria create problems for the definition of expectations, and introduce a new dimension of uncertainty.
Increasing returns, externalities, and nonconvexities
"Starting with a paper in Econometrica by Dierker, Guesnerie and Neuefeind (1985), a theory of general equilibrium has developed for economies with non-convex production sets, where firms follow well-defined pricing rules. In particular, existence theorems of increasing generality cover (to some extent, because of various differences in assumptions) the case of Ramsey-Boiteux pricing. Those interested primarily in applications might express skepticism, perhaps even horrified skepticism, upon realizing that 90 pages of a serious economics journal---a 1988 issue of The Journal of Mathematical Economics---were devoted to existence proofs of equilibrium in non-convex economies, under alternative formulations of the assumption that marginal cost pricing entails bounded losses at normalized prices. Still, I think that economic research must cover the whole spectrum from concrete applications to that level of abstraction."
Finance and the diversification of risk
Drèze gave a public lecture on "Human Capital and Risk Bearing" (48). The innovative idea here is the transposition of the reasoning underlying the theory of “implicit labour contracts” to the understanding of wage rigidities and unemployment benefits. When markets are incomplete, so that workers cannot insure the risks associated with their future terms of employment, competitive clearing of spot labour markets is not second-best efficient: wage rigidities cum unemployment benefits offer scope for improvement.
The lecture develops this theme informally. The conclusion, stated with specific reference to labour markets, has more general validity. It applies to any situation where the uninsurable uncertainty about future prices results in welfare costs. Even though price rigidities entail a loss of productive efficiency, this can be more than offset by a gain of efficiency in risk-sharing. What may be specific to the labour market is the realistic possibility of controlling (minimum) wages and organising unemployment compensation. The analysis implies that the claim that wage flexibility is efficient requires qualification.
For “price-wage rigidities", the presence of rigidities receives an explanation in Section Seven of Drèze's lecture: Under incomplete markets, wage rigidities contribute to risk-sharing efficiency. The theme of the 1979 lecture (48) is taken up in several papers (91, 95, 101), exploring the definition and implementation of second-best wage rigidities.
Since then, Jacques Drèze has examined ways of reconciling flexibility of labour costs to firms with risk-sharing efficiency of labour incomes, if needed through wage subsidies (119, 125, 131).
Disequilibrium
Drèze has suggested that research needs both to search for "microeconomic foundations for macroeconomicsMicrofoundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory....
" and to consider the "macroconomic consequences of microecononomics", and Drèze had contributed to the latter project of macroeconomic consequences of microeconomics
Theory
In the early seventies, motivated by the potential role of price rigidities for enhancing risk-sharing efficiency, Jacques Drèze undertook to define equilibria with price rigidities and quantity constraints and to study their properties in a general equilibrium
General equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...
context. His 1975 paper (36, circulated in 1971) introduces the so-called “Drèze equilibrium” at which supply (resp. demand) is constrained only when prices are downward (resp. upward) rigid, whereas a preselected commodity (e.g. money) is never rationed. Existence is proved for arbitrary bounds on prices, through an original approach repeatedly used ever since. That paper is a widely cited classic. It was followed by several others (51, 55, 63, 75), exploring properties of the new concept. Of particular significance to future developments is a joint paper with Pierre Dehez (55), which establishes the existence of Drèze equilibria with no rationing of the demand side. These are called “supply-constrained equilibria”. They correspond to the empirically relevant macroeconomic situations.
In the meantime, Jean-Pascal Bénassy (1975) and Yves Younès (1975) had approached the same problem from a macroeconomic angle, for the more restrictive case of fixed prices. There developed a lively interest in fixed price economies, and specifically in a three-good macroeconomic model, first formulated by Robert Barro
Robert Barro
Robert Joseph Barro is an American classical macroeconomist and the Paul M. Warburg Professor of Economics at Harvard University. The Research Papers in Economics project ranked him as the 4th most influential economist in the world as of August 2011 based on his academic contributions...
and Herschel Grossman (1971) and then studied extensively by Edmond Malinvaud
Edmond Malinvaud
Edmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
(1977). That model invited empirical estimation
Estimation theory
Estimation theory is a branch of statistics and signal processing that deals with estimating the values of parameters based on measured/empirical data that has a random component. The parameters describe an underlying physical setting in such a way that their value affects the distribution of the...
. The new statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
challenges posed by “disequilibrium econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988). Following a joint paper by Drèze and Sneessens (71), a major project (the European Unemployment Program) directed by Jacques Drèze and Richard Layard
Richard Layard
Richard Layard, Baron Layard is a British economist. He was founder-director in 1990 of, and is a current programme director at, the Centre for Economic Performance at the...
led to estimation of a common disequilibrium model in ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
The next steps in the theoretical research came with the work of John Roberts
Donald John Roberts
Donald John Roberts is the John H. and Irene S. Scully Professor of Economics, Strategic Management and International Business at the Stanford Graduate School of Business . He has been a member of the Stanford faculty since 1980...
on supply-constrained equilibria at competitive prices, and then with the dissertation of Jean-Jacques Herings at Tilburg (1987, 1996). In both cases, there appear results on existence of a continuum of Drèze equilibria. Following these leads, Drèze (113) proved existence of equilibria with arbitrarily severe rationing of supply. Next, in a joint paper with Herings and others (132), the generic existence of a continuum of Pareto-ranked supply-constrained equilibria was established for a standard economy with some fixed prices. An intuitive explanation of that surprising result is this: if some prices are fixed and the remaining are flexible, the level of the latter prices relative to the former introduces a degree of freedom that accounts for the multiplicity of equilibria; globally, less rationing is associated with a higher price level; the multiplicity of equilibria thus formalises a trade-off between inflation and unemployment, comparable to a Phillips curve
Phillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...
.
Econometrics and the European Unemployment Programme
Two young French economists, Jean-Pascal Bénassy (1975) and Yves Younès (1975), approached the same problem from a macroeconomic angle, for the more restrictive case of fixed prices. There developed a lively interest in fixed-price economies, and specifically in a three-good macroeconomic model, first formulated by Robert Barro
Robert Barro
Robert Joseph Barro is an American classical macroeconomist and the Paul M. Warburg Professor of Economics at Harvard University. The Research Papers in Economics project ranked him as the 4th most influential economist in the world as of August 2011 based on his academic contributions...
and Herschel Grossman (1971) and then studied extensively by Edmond Malinvaud
Edmond Malinvaud
Edmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
(1977).
That model invited empirical estimation
Estimation theory
Estimation theory is a branch of statistics and signal processing that deals with estimating the values of parameters based on measured/empirical data that has a random component. The parameters describe an underlying physical setting in such a way that their value affects the distribution of the...
. The new statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
challenges posed by “disequilibrium econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
” were attacked at CORE by two students of Jacques Drèze, namely Henri Sneessens (1981) and Jean-Paul Lambert (1988), whose dissertations were published and widely read. Drèze and Sneessens proposed and estimated a disequilibrium model of Belgium's open economy (71). This model became the prototypical model estimated by the European Unemployment Programme, which under the guidance of Drèze and Richard Layard
Richard Layard
Richard Layard, Baron Layard is a British economist. He was founder-director in 1990 of, and is a current programme director at, the Centre for Economic Performance at the...
developed similar models for ten countries (B4, 93, 94). The results of that successful effort were to inspire policy recommendations in Europe for several years.
Economic policy
Following the emergence of European unemploymentUnemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
in the 1970s, Jacques Drèze worked with Franco Modigliani
Franco Modigliani
Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
on macroeconomic policies. There resulted a paper (56), which contains some methodological innovations (an early formulation of the “union-wage model”, and Bayesian
Bayesian inference
In statistics, Bayesian inference is a method of statistical inference. It is often used in science and engineering to determine model parameters, make predictions about unknown variables, and to perform model selection...
synthesis
Meta-analysis
In statistics, a meta-analysis combines the results of several studies that address a set of related research hypotheses. In its simplest form, this is normally by identification of a common measure of effect size, for which a weighted average might be the output of a meta-analyses. Here the...
of classical estimates from several models). It also contains an innovative discussion of work sharing, a topic to which Drèze returned in (73).
In the 1980s and early 1990s, Drèze wrote about the policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
front, campaigning for two-sided policies of demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
stimulation
Stimulation
Stimulation is the action of various agents on nerves, muscles, or a sensory end organ, by which activity is evoked; especially, the nervous impulse produced by various agents on nerves, or a sensory end organ, by which the part connected with the nerve is thrown into a state of activity.The word...
and supply-side restructuring
Restructuring
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs...
(100). With Edmond Malinvaud
Edmond Malinvaud
Edmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
, Drèze organized a group of thirteen Belgian and French economists who wrote “Growth and employment: the scope for a European initiative” (103, 104): This position paper advocated an ambitious program of public investments coupled with elimination of social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
contributions by employees on minimum wages. That paper has influenced the programs of reduced contributions on low wages introduced recently in several countries, especially France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
.
The logic of these two-handed policies stands out more sharply in the light of the work on co-ordination failures (124, section 6). These failures are more naturally remedied through demand stimulation. But the failures are apt to be recurrent, so that deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....
could lead to continued growth of the public debt. Accordingly, demand stimulation should take the form of socially profitable investments, with returns covering the debt service. Substituting profitable investments and variable social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
contributions for deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....
and straight wage
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
rigidities
Rigidity
Rigid or rigidity may refer to:*Stiffness, the property of a solid body to resist deformation, which is sometimes referred to as rigidity*Structural rigidity, a mathematical theory of the stiffness of ensembles of rigid objects connected by hinges...
, the proposed two-handed policies differ from either orthodox Keynesianism or New Keynesian policies.
Public economics
"I am impressed by the depth and breadth of knowledge that a serious public economist dreams of commanding. The methodological spectrum includes at one end practical and institutional aspects of public utility pricing, taxation or health care provision, which give the field its substantive content. The real problems encountered in these and many other areas offer scope for the general equilibrium mathematical analysis of second-best policies. At the far end of the spectrum is abstract modelling of economies with non-convex technologies or uncertainty and incomplete markets. Confronted by this spectrum, duly illustrated here, I feel neither despairing nor resigned to narrow specialization, but probably over-extended."
Bayesian econometrics of simultaneous equations
One important by-product of the theory of rational decisions under uncertainty has been the emergence of the Bayesian approach to statisticsBayesian statistics
Bayesian statistics is that subset of the entire field of statistics in which the evidence about the true state of the world is expressed in terms of degrees of belief or, more specifically, Bayesian probabilities...
, which views problems of statistical decision as no different from other decision problems, and problems of statistical inference
Bayesian inference
In statistics, Bayesian inference is a method of statistical inference. It is often used in science and engineering to determine model parameters, make predictions about unknown variables, and to perform model selection...
as concerned with the revision of subjective probabilities on the basis of observations.
Bayesian analysis of structural econometric models raises specific difficulties, linked to the so-called “identification problem
Parameter identification problem
The parameter identification problem is a problem which can occur in the estimation of multiple-equation econometric models where the equations have variables in common....
”, readily illustrated by a single market: we observe prices and quantities at the intersection of supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
, whereas we wish to estimate
Estimation theory
Estimation theory is a branch of statistics and signal processing that deals with estimating the values of parameters based on measured/empirical data that has a random component. The parameters describe an underlying physical setting in such a way that their value affects the distribution of the...
the demand and supply curves. The development of suitable Bayesian methods
Bayesian statistics
Bayesian statistics is that subset of the entire field of statistics in which the evidence about the true state of the world is expressed in terms of degrees of belief or, more specifically, Bayesian probabilities...
for this problem followed circulation in 1962 of a Discussion Paper by Jacques Drèze, fully developed in several subsequent papers (34, 39, 41, 61). The “Drèze Prior” is introduced in (39).
Leadership
Jacques Drèze has been involved in helping to found several institutions that have strengthened economic research in Europe, notably the Center for Operations Research and Econometrics (CORE), the European Doctoral Program in Quantitative Economics (EDP) and the European Economic Association (EEA).CORE
CORE was created in 1966, and rapidly grew into a leading research centre of international significance. Jacques Drèze was the instigator, the organiser, the first Director and a long-time President of CORE. His outside connections were critical in gathering outside support and in attracting foreign members or visitors.As expressed by Robert Aumann
Robert Aumann
Robert John Aumann is an Israeli-American mathematician and a member of the United States National Academy of Sciences. He is a professor at the Center for the Study of Rationality in the Hebrew University of Jerusalem in Israel...
, CORE is “a unique breeding ground; a place where cross-fertilisation leads to the conception of new ideas, as well as a womb – a warm, supportive environment in which these ideas can grow and mature”. The research output at CORE since 1966 consists to date of some 110 books, 125 doctoral dissertations, 1700 published articles; Discussion Papers now average 85 per year.
Also, CORE has served as a model, emulated in other European countries, often at the hands of former CORE members or visitors: Bonn, for GREQAM in Marseille, CentER at Tilburg or Delta in Paris.
Doctoral study and the European Doctoral Program in Quantitative Economics
It is also at CORE, and again at the initiative of Jacques Drèze, that EDP was conceived in 1975. Two ideas came together:- An institution should not organise its own doctoral program if it cannot do as well as leading institutions elsewhere.
- Education for research is greatly enhanced if students attend at least two institutions, being thereby led to hear confronting opinions and form their own!
These ideas were realised under EDP, where several universities organise a joint doctoral program, with all students attending at least two institutions and having access to supervisors from both. Some 120 students have graduated under this program, which again has been emulated by others in Europe.
European Economic Association
In 1885 the EEA was conceived by Jean Gabszewicz and Jacques Thisse, both of CORE. The first secretary was CORE's Louis Phlips and Jacques Drèze was the first President. Today the EEA sponsors the Journal of the European Economic Association (JEEA), holds annual meetings, and organizes summer schools for young researchers.Personal biography
Born in VerviersVerviers
Verviers is a Walloon city and municipality located in the Belgian province of Liège. The Verviers municipality includes the old communes of Ensival, Lambermont, Petit-Rechain, Stembert, and Heusy...
(Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
) in 1929, Jacques Drèze did undergraduate economics at the nearby Université de Liège
University of Liège
The University of Liège , in Liège, Wallonia, Belgium, is a major public university in the French Community of Belgium. Its official language is French.-History:...
, and then a Ph.D.
Ph.D.
A Ph.D. is a Doctor of Philosophy, an academic degree.Ph.D. may also refer to:* Ph.D. , a 1980s British group*Piled Higher and Deeper, a web comic strip*PhD: Phantasy Degree, a Korean comic series* PhD Docbook renderer, an XML renderer...
at Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
, with a thesis on “Individual Decision Making under Partially Controllable Uncertainty” supervised by William Vickrey
William Vickrey
William Spencer Vickrey was a Canadian professor of economics and Nobel Laureate. Vickrey was awarded the Nobel Memorial Prize in Economics with James Mirrlees for their research into the economic theory of incentives under asymmetric information...
. After a first academic job at Carnegie Mellon University
Carnegie Mellon University
Carnegie Mellon University is a private research university in Pittsburgh, Pennsylvania, United States....
in Pittsburgh, he joined Université Catholique de Louvain
Université catholique de Louvain
The Université catholique de Louvain, sometimes known, especially in Belgium, as UCL, is Belgium's largest French-speaking university. It is located in Louvain-la-Neuve and in Brussels...
in 1958, and has been there ever since---apart from visiting appointments at Northwestern University
Northwestern University
Northwestern University is a private research university in Evanston and Chicago, Illinois, USA. Northwestern has eleven undergraduate, graduate, and professional schools offering 124 undergraduate degrees and 145 graduate and professional degrees....
, the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
, and Cornell University
Cornell University
Cornell University is an Ivy League university located in Ithaca, New York, United States. It is a private land-grant university, receiving annual funding from the State of New York for certain educational missions...
---until his retirement from teaching and administration in 1989. Since his nominal retirement, he remains active in research.
Jacques Drèze has five sons including the economist and anti-hunger activist Jean Drèze
Jean Drèze
Jean Drèze is a development economist who has been influential in Indian economic policymaking. He is a naturalized Indian of Belgian origin. His work in India include issues like hunger, famine, gender inequality, child health and education, and the NREGA...
, who has collaborated on three books with Amartya K. Sen. Another son, Xavier Drèze, is a marketing professor at UCLA.
Books by Jacques Drèze
These enumerated citations and comments adapt the c.v. of Jacques Drèze (2009-03-06):- 1. Allocation under Uncertainty: Equilibrium and Optimality (Ed.), Macmillan, London, 1974.
- 2. Essays on Economic Decisions under Uncertainty, Cambridge University Press, Cambridge, 1987.
- Twenty reprinted papers, organised under 7 headings: individual decision theory, markets and prices, consumer decisions, producer decisions, theory of the firm, human capital and labour contracts, public decisions.
- 3. Labour Management, Contracts and Capital Markets, A General Equilibrium Approach, Oxford, 1989.
- An extended version of the 1983 Yrjö Jahnsson Lectures, dealing with the pure theory of labour-managed, then stock-market economies; stock-market economics with labour contracts; labour management versus labour contracts under incomplete capital markets; and some macroeconomic aspects.
- 4. Europe's Unemployment Problem (Ed.), MIT Press, Cambridge (Mass.), 1990. (With C. Bean, J.P. Lambert, F. Mehta and H. Sneessens, Eds)
- Papers prepared under the European Unemployment Program, a 10-country research initiative supervised by Richard LayardRichard LayardRichard Layard, Baron Layard is a British economist. He was founder-director in 1990 of, and is a current programme director at, the Centre for Economic Performance at the...
and Drèze in 1986-88. The country papers adopted a common econometric framework inspired by work on Belgium by Drèze and Henri Sneesens (see article [71]). Includes a 65-page synthesis by Charles Bean and Drèze.
- Papers prepared under the European Unemployment Program, a 10-country research initiative supervised by Richard Layard
- 5. Underemployment Equilibria: Essays in Theory, Econometrics and Policy, Cambridge University Press, Cambridge, 1991.
- Eighteen reprinted papers, organised under 8 headings: overview, equilibria with price rigidities, efficiency of constrained equilibria, public goods and the public sector, price adjustments, wage policies, econometrics, and policy.
- 6. Money and Uncertainty: Inflation, Interest, Indexation, Edizioni Dell' Elefante, Roma, 1992.
- An extended version of the 1992 Paolo Baffi Lecture at Banca d'Italia, dealing successively with a positive theory of positive inflation, with interest rates policies and with wage indexation.
- 7. Pour l'emploi, la croissance et l'Europe, De Boeck Université, 1995.
- Ten papers (some initially written in French, some translated from English) dealing successively with growth and employment, technical progress and low-skilled employment, European macroeconomic policies, work sharing, Europe's capital city and a status for regions within a Europe of nations. Most papers are based on lectures addressed to non-specialist audiences.
Selected articles by Jacques Drèze
These enumerated citations and comments come from the c.v. of Jacques Drèze (2009-03-06):- 7. "Quelques réflexions sereines sur l'adaptation de l'industrie belge au Marché Commun", Comptes Rendus de la Société d'Economie Politique de Belgique, Bruxelles, 275, 3-37, 1960; translated as "The Standard Goods Hypothesis" in The European Internal Market: Trade and Competition, Eds. A. Jacquemin and A. Sapir, 13-32, Oxford University Press, Oxford,1989.
- Product differentiation and economies of scale as a new source of comparative advantage---a pillar of the extensive theory of "intra-industry trade", and of some more recent developments following the paper by Krugman in AER 1970.
- 8. "Les fondements logiques de l'utilité cardinale et de la probabilité subjective", in La Decision, Colloques Internationaux du CNRS, Paris, 73-97, 1961.
- Extension of individual decision theory to moral hazard and state-dependent preferences, based on unpublished Ph.D. Thesis, revised and more systematically presented in [76].
- 12. "L'utilité sociale d'une vie humaine", Revue Francaise de Recherche Opérationnelle, 23, 93-118, 1962.
- Introduces the "willingness to payWillingness to payIn economics, the willingness to pay is the maximum amount a person would be willing to pay, sacrifice or exchange in order to receive a good or to avoid something undesired, such as pollution...
" approach to the demand for safety.
- Introduces the "willingness to pay
- 13. "Some Postwar Contributions of French Economists to Theory and Public Policy", American Economic Review, 54, 2, 1-64, 1964.
- An extensive review (with some extensions) of the work of the French marginalist school (Allais, Boiteux, Massé,. . . ), with additional sections on intertemporal allocation (Allais, Malinvaud,. . . ) and French planning.
- 21. "Market Allocation under Uncertainty", European Economic Review, 2, 2, 133-165, 1971.
- Interpretation of the Arrow-Debreu contingent-markets model. An early statement and demonstration of the martingaleMartingaleMartingale can refer to:*Martingale , a stochastic process in which the conditional expectation of the next value, given the current and preceding values, is the current value*Martingale for horses...
property of prices for contingent claims.
- Interpretation of the Arrow-Debreu contingent-markets model. An early statement and demonstration of the martingale
- 23. "A Tâtonnement Process for Public Goods", Review of Economic Studies, 38, 2, 133-150, 1971. (With D. de la Vallèe Poussin.)
- Introduces the well-known MDP process for public goods, demonstrates convergence and provides an early analysis of incentive compatibility.
- 25. "Discount Rates for Public Investments in Closed and Open Economies", Economica, 38, 152, 395-412, 1971; reprinted in Cost-Benefit Analysis, A.C. Harberger and G.P. Jenkins Eds, Edward, 2002, and in Discounting and Environmental Policy, J. Scheraga, Ed., Ashgate, 2002. (With A. Sandmo.)
- Second-best analysis of the choice of a discount rate for public investment (previously confined to partial analysis). The social discount rate should be a weighted average of rates of return on specific investments, with weights reflecting marginal shares.
- 26. "Cores and Prices in an Exchange Economy with an Atomless Sector", Econometrica 40, 6, 1090–1108, 1972. (With J. Jaskold Gabszewicz, D. Schmeidler and K. Vind.)
- For an exchange economy with both an atomless sector and atoms, the paper gives alternative sufficient conditions for a core allocation to have a competitive restriction to the atomless sector.
- 27. "Econometrics and Decision Theory", Econometrica, 40, 1, 1-17, 1972.
- Presidential address to the Econometric Society; summarises Drèze's work on Bayesian Econometrics (see also [61]) and expounds complementarities between economic theory, decision theory, econometrics and mathematical programming.
- 28. "Consumption Decisions under Uncertainty", Journal of Economic Theory, 5, 3, 308-335, 1972. (With F. Modigliani.)
- Clearly distinguished time preferences from risk preferences and temporal versus timeless uncertainty, while expounding results on savings and portfolio choices under uncertainty.
- 33. "Investment under Private Ownership: Optimality, Equilibrium and Stability" in Allocation under Uncertainty: Equilibrium and Optimality, Macmillan, chap. 9, 1974.
- Develops the "incomplete marketsIncomplete marketsIn economics, incomplete markets refers to markets in which the number of Arrow–Debreu securities is less than the number of states of nature...
" model of general equilibriumGeneral equilibriumGeneral equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...
under uncertaintyUncertaintyUncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...
, with a single commodity per state, as an extension of the special model (fixed coefficients) introduced in the seminal paper by DiamondPeter DiamondPeter Diamond was an English actor who had trained at the Royal Academy of Dramatic Art and remembered as a stuntman on television or film....
in AER 1967; proves basic results (most notably non-convexity, but also existence of stockholders equilibria, their inefficiency, and stability of stock-market valuation of investments.)
- Develops the "incomplete markets
- 34. "Bayesian Theory of Identification in Simultaneous Equations Models" in Studies in Bayesian Econometrics and Statistics, Eds. S.E. Fienberg and A. ZellnerArnold ZellnerArnold Zellner was an American economist and statistician specializing in the fields of Bayesian probability and econometrics...
, North-Holland, 1974.- Based on an unpublished manuscript of 1962. Introduces the Bayesian concept of identificationParameter identification problemThe parameter identification problem is a problem which can occur in the estimation of multiple-equation econometric models where the equations have variables in common....
and applies it to SEM; together with [39, 41, 44], forms the core of the material summarised in [61] and outlined in [27].
- Based on an unpublished manuscript of 1962. Introduces the Bayesian concept of identification
- 36. "Existence of an Exchange Equilibrium under Price rigidities", International Economic Review, 16, 2, 301-320, 1975.
- Introduces an equilibrium concept for market economies operating under price rigidities (the so-called Drèze equilibrium) and a now widely used method of proving existence. Covers both real and nominal rigidities defined by upper and/or lower bounds on individual prices.
- 38. "Pricing, Spending and Gambling Rules for Non-Profit Organisations" in Public and Urban Economics, Essays in Honor of William S. Vickrey, Ed. R.E. Grieson, Lexington Books, 59-89, 1976. (With M. Marchand.)
- Second-best theory applied to non-profit organisations, including Ramsey-Boiteux pricing, criteria for capital accumulation or consumption and guidelines for risk-taking.
- 39. "Bayesian Limited Information Analysis of the Simultaneous Equations Model", Econometrica 44, 5, 1045–1075, 1976.
- The fundamental paper on Bayesian methods for SEM, including the use of ratio-form poly-t densities.
- 40. "Some Theory of Labour Management and Participation", Econometrica, 44, 6, 1125–1139, 1976.
- Walras lecture to the 1975 World Congress of the Econometric Society. Preview of book [3]. Includes the first general-equilibrium analysis of labour management. Under labour-mobility across firms, labour-management equilibria replicate competitive equilibria.
- 41. "Bayesian Full Information Analysis of Simultaneous Equations", Journal of the American Statistical Association 71, 345, 919-923, 1976. (With J.-A. Morales.)
- Extension of [39] from limited to full information: a broader class of prior densities and a more informative analysis, at greater computational cost.
Vision and projects
- "From uncertainty to macroeconomics and back: an interview with Jacques Drèze", Pierre Dehez and Omar Licandro. Macroeconomic DynamicsMacroeconomic DynamicsMacroeconomic Dynamics is a peer-reviewed academic journal which publishes articles in macroeconomics. MD is edited by William A. Barnett and published by Cambridge University Press...
, 9, 2005, 429–461. - Jacques H. Drèze. 1972. “Econometrics and decision theory [Presidential address to the Econometric SocietyEconometric SocietyThe Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
]” Econometrica, 40(1): 1-18. [J. H. Drèze 1987. Essays on Economic Decisions Under Uncertainty. Cambridge UP]: - Jacques H. Drèze. 1987. “Underemployment Equilibria: From Theory to Econometrics and Policy” [First Congress of the European Economic AssociationEuropean Economic AssociationThe European Economic Association is a professional academic body which links European economists. It was founded in the mid-1980s. Its first annual congress was in 1986 in Vienna, Austria...
, Presidential Address] European Economic Review, 31: 9—34. In Drèze 1993
- Gérard DebreuGerard DebreuGérard Debreu was a French economist and mathematician, who also came to have United States citizenship. Best known as a professor of economics at the University of California, Berkeley, where he began work in 1962, he won the 1983 Nobel Memorial Prize in Economics.-Biography:His father was the...
. 1991. "Address in honor of Jacques Drèze". Pages 3–6 in W. A. BarnettWilliam A. BarnettWilliam Arnold Barnett is an American economist whose current work is in the field of chaos, bifurcation, and nonlinearity in socioeconomic contexts, as well as the study of the aggregation problem....
, B. Cornet, C. D'Aspremont, J. Gabszewicz, A. Mas-ColellAndreu Mas-ColellAndreu Mas-Colell is a Spanish economist, an expert in microeconomics and one of the world's leading mathematical economists. He is the founder of the Barcelona Graduate School of Economics and a professor in the department of economics at Pompeu Fabra University in Barcelona, Catalonia, Spain...
, eds. Equilibrium Theory and Applications. Cambridge U. P.
Unemployment
- Jacques H. Drèze, Charles R. Bean, JP Lambert. 1990. Europe's Unemployment Problem. MIT Press. This book has chapter-versions of the following refereed articles:
- Henri R. Sneessens and Jacques H. Drèze. 1986. “A Discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics.” Economica 53: S89—S119. [Supplement: Charles Bean, Richard LayardRichard LayardRichard Layard, Baron Layard is a British economist. He was founder-director in 1990 of, and is a current programme director at, the Centre for Economic Performance at the...
, and Stephen Nickell, eds. 1986. The Rise in Unemployment. Blackwell] - Jacques H. Drèze and Charles Bean. 1990. “European unemployment: Lessons from a multicountry econometric study.” Scandinavian Journal of Economics Vol 92, No. 2: 135—165 [Bertil Holmlund and Garl-Gustaf Löfgren, eds. Unemployment and Wage Determination in Europe. Blackwell. 3—33. In Dréze 1993.]
- Henri R. Sneessens and Jacques H. Drèze. 1986. “A Discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics.” Economica 53: S89—S119. [Supplement: Charles Bean, Richard Layard
- Jacques H. Drèze. 1993. Underemployment Equilibria: Essays in Theory, Econometrics, and Policy. Cambridge UP. This collection contains the following essay:
- Jacques H. Drèze; Torsten Persson; Marcus Miller. "Work-Sharing: Some Theory and Recent European Experience". Economic Policy, Vol. 1, No. 3 (Oct., 1986), pp. 561–619.
Dissertations of Ph.D. students
- Sneessens, Henri B. 1981. Theory and Estimation of Macroeconomic Rationing Models. Springer-Verlag Lecture Notes in Economics and Mathematical Systems, Volume 191.
- Lambert, Jean-Paul. 1988. Disequilibrium Macroeconomic Models: Theory and Estimation of Rationing Models Using Business Survey Data. Cambridge UP.
Economic policy, especially for Europe
- Drèze, Jacques H.; Malinvaud, EdmondEdmond MalinvaudEdmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
. 1994. 'Growth and employment: The scope for a European initiative', European Economic Review 38, 3—4: 489—504.
- Drèze, Jacques, E. MalinvaudEdmond MalinvaudEdmond Malinvaud is a French economist. He was the first president of the Pontifical Academy of Social Sciences....
, P. De Grauwe, L. Gevers, A. Italianer, O. Lefebvre, M. Marchand, H. Sneesens, A. Steinherr, Paul Champsaur, J.-M. Charpin, J.-P. Fitoussi & G. Laroque (1994) “Growth and employment: the scope for a European initiative”. European Economy, Reports and Studies 1, 75–106.
- Drèze, Jacques H.; Henri Sneessens (1996). 'Technical development, competition from low-wage economies and low-skilled unemployment', Swedish Economic Policy Review. 185–214.
- Jacques H. Drèze. 2000. “Economic and social security in the twenty-first century, with attention to Europe”. Scandinavian Journal of Economics 102, 327–348.
Theory of the firm, especially labor in the firm
- JHD. 1989. Labour Management, Contracts and Capital Markets: A General Equilibrium Approach. [1983 Yrjö Jahnsson Lectures]. Basil Blackwell.
- JHD. "Some Theory of Labor Management and Participation", Econometrica, Vol. 44, No. 6 (Nov., 1976), pp. 1125–1139
- JHD. "(Uncertainty and) The Firm in General Equilibrium Theory". The Economic Journal, Vol. 95, Supplement: Conference Papers (1985), pp. 1–20,
Public economics
- JHD. "Research and Development in Public Economics: William Vickrey's Inventive Quest of Efficiency". The Scandinavian Journal of Economics, Vol. 99, No. 2 (Jun., 1997), pp. 179–198
- JHD. 1995. “Forty years of public economics: A personal perspective”. Journal of Economic Perspectives Vol. 9, No. 2: 111—130.
- J. H. Drèze; D. de la Vallee Poussin. "A Tâtonnement Process for Public Goods", The Review of Economic Studies, Vol. 38, No. 2. (Apr., 1971), pp. 133–150.
Planning and regional economics
- Jacques Drèze; Paul de Grauwe; Jeremy Edwards. "Regions of Europe: A Feasible Status, to Be Discussed". Economic Policy, Vol. 8, No. 17 (Oct., 1993), pp. 265–307
- Abraham Charnes; Jacques Drèze; Merton Miller. "Decision and Horizon Rules for Stochastic Planning Problems: A Linear Example". Econometrica, Vol. 34, No. 2. (Apr., 1966), pp. 307–330.
Statistics and Bayesian econometrics: Simultaneous equations and the Louvain School
- JHD. "Bayesian Limited Information Analysis of the Simultaneous Equations Model". Econometrica, Vol. 44, No. 5 (Sep., 1976), pp. 1045–1075.
- JHD and Juan-Antonio Morales. "Bayesian Full Information Analysis of Simultaneous Equations". Journal of the American Statistical Association. Vol. 71, No. 356 (Dec., 1976), pp. 919–923.
- JHD and Jean-François Richard. 1983. "Bayesian Analysis of Simultaneous Equation Systems". Chapter 9, pages 517-598, in Handbook of Econometrics, Volume I, edited by Zvi GrilichesZvi GrilichesHirsh Zvi Griliches was an economist at Harvard University. He was born in Kaunas, Lithuania in an assimilated Jewish family that spoke Russian at home. During World War II he was sent to the Dachau concentration camp...
and Michael D. Intriligator. (Book 2 of Handbooks in Economics, edited by Kenneth J. Arrow and Michael D. Intriligator) North-Holland.
Colleagues
- Luc Bauwens, Michel Lubrano, Jean-François Richard. 1999. Bayesian Inference in Dynamic Econometric Models. Oxford University Press. (JHD wrote the "Foreword", pages v-vi)
- Jean Pierre Florens, Michel Mouchart, Jean-Marie Rolin. 1990. Elements of Bayesian Statistics. Pure and Applied Mathematics, Volume 134. Marcel Dekker.
CORE
- Bernard Cornet and Henry Tulkens, eds. Contributions to Operations Research and Economics. The twentieth anniversary of CORE. Papers from the symposium held in Louvain-la-Neuve, January 1987. Edited by. MIT Press, Cambridge, MA, 1989. xii+561 pp. ISBN 0-262-03149-3