Paul Milgrom (Detroit, Michigan, United States; 1948) completed a BA in mathematics at the University of Michigan, before moving to Stanford, where he specialized in statistics and earned a PhD in business. He began his research and teaching career at Northwestern University (Illinois), where he would later occupy a series of professorial posts. In 1987, after five years at Yale, he returned to Stanford University, where he is currently the Shirley and Leonard Ely Professor of Humanities and Sciences, as well as professor by courtesy in the Stanford Graduate School of Business.
His scientific papers and books have been cited more than 53,000 times, according to Google Scholar. He had occupied editorial positions at international journals including American Economic Review, Econometrica and Journal of Economic Theory, and is a fellow of the Econometric Society and a member of both the U.S. National Academy of Sciences and the American Academy of Arts and Sciences.
Since receiving the BBVA Foundation Frontiers of Knowledge Award (2012), he has gone on to win the Nobel Prize in Economic Science (2020).
Speech
Economics Finance and Management, 5th edition
The film team gets a call from Madrid ordering them to California to record an interview with Paul Milgrom, the new BBVA Foundation Frontiers of Knowledge laureate in Economics, Finance and Management. No one stops to think that this wireless communication was facilitated by a telecom provider who won the license in an auction of Milgrom’s devising. Could this communication have happened without the auction? Technically, yes, but perhaps with an inferior sound quality, in the event of the spectrum frequencies not being allotted to the bidders best able to exploit them. And, meantime, many public services could not have been funded without the cash raised in the bidding process. The theories of Paul Milgrom have succeeded in wedding the efficient allocation of resources, in this case the radio spectrum, with maximum benefit for the public sector of the economy.
The jury’s citation starts by saying that Milgrom “has made seminal contributions to an unusually wide range of fields of economics including auctions, market design, contracts and incentives, industrial economics, economics of organizations, finance, and game theory.” But undoubtedly “his work on auction theory is his best known,” the text continues, adding that “he has designed auctions for multiple complementary items, with an eye towards practical applications such as frequency spectrum auctions.”
Paul Milgrom completed a B.A. in mathematics at the University of Michigan, before moving to Stanford, where he specialized in statistics. His interest in economics was first stirred by an article of William Vickrey’s, and his reading of David Gale and Lloyd Shapley’s landmark study. Nor is it surprising that they had so much influence on a young mathematician: years later the selfsame papers would earn their authors the Nobel Prize. “It was just shocking to me that you could use mathematics to make precise arguments about economic matters,” says Milgrom, referring to the effects of this encounter. “It had a huge impact on me. That’s how I was drawn into economics, by particular papers that I just found amazing, an eye-opener.”
Finally, Milgrom obtained a PhD in economics from Stanford University. He began his research and teaching career at Northwestern University (Illinois), where he rose to a full professorship. This was followed by five years at Yale, then a return to Stanford, where he is currently the Shirley and Leonard Ely Professor of Humanities and Sciences, as well as professor by courtesy at the Stanford Graduate School of Business.
As Milgrom explains, “auctions determine how resources are shared out, they decide who gets what and at what price, at times even with a lot of goods being offered simultaneously. They are important for the same reason that markets are important. Initially, no one can know what a given object is worth to each of its possible buyers, and we need a mechanism that gives us that information; a competition so buyers can show their interest through bidding and the resources go to the highest bidder, but also so resources end up in the hands of those who will put them to good use.” He remembers his emotions when the U.S. Federal Communications Commission (FCC) called him to help with the design of their radio spectrum auctions.
This was 1993, and “initially it was really very scary,” Milgrom admits. “I had never done anything very practical or applied.” The first reaction was panic: “Oh my god! I don’t know anything about the real world. I can’t design a practical auction,” he now recalls. But after looking at other proposals sent to the FCC, he was clear that “I can do better than that.” “It was a change of attitude. As an academic, you want it all to be perfect. But we can’t design perfect mechanisms. And looking at what other people were proposing, I realized I could propose something that was better.”
In essence, what Milgrom was confronting was a problem common to many economic theorists: “When you’re doing theory sometimes you wonder, why am I doing this? Is it worth anything? And then to actually bring it to practice makes it all more exciting. So I think theory and practice enhance each other, like wine and a good steak.” The jury also refers to another of the new laureate’s lines of work: “Professor Milgrom’s research in industrial organization includes influential studies on limit pricing, entry deterrence, predation, and advertising.”
Best known perhaps are his reflections on the complementarities between a company’s strategy and organizational design, formalizing the intuitive idea of synergy, and on the design of incentives for workers in multitask jobs. His theoretical insights in this field were brought together in the 1992 publication Economics, Organization and Management, coauthored with John Roberts and now a standard textbook in schools of economics throughout the world.
“When I teach my students theory, I encourage them to challenge me by asking me how it is useful,” Milgrom observes. “It’s healthy for them to ask, and it’s not hard for me to answer because I always have real-world examples in mind when I am working on my theories.”
