The BBVA Foundation Frontiers of Knowledge Award in Economics, Finance and Management goes, in this tenth edition, to Timothy Bresnahan, Ariel Pakes and Robert Porter, for their fundamental contributions to empirical industrial organization. Motivated by important and policy-relevant questions in applied economics such as detecting collusion in various product markets or auctions, assessing the effects of deregulation on productivity, understanding the determinants and effects of firm entry, estimating the value of patents, etc., they developed methodologies that had a significant and long-lasting impact on subsequent work in industrial organization, as well as other applied fields. The empirical approaches they developed are characterized by a close connection of empirics to theory. Because their papers focus on specific industries, the assumptions of the models they employ are always informed by a careful study of the institutional setting. This combination of theory-based inquiry and understanding of the institutional environment lends credibility to their results and serves as a model for empirical work.
Timothy Bresnahan demonstrated in his early work on the automobile industry how one can estimate a model of a specific industry based on market level data to infer the demand, cost and behavioral parameters. His work laid the foundations for the so-called “new empirical industrial organization” and led to several follow-up papers. He has also made important contributions to the study of entry, technology and entrepreneurship.
Ariel Pakes has made important contributions to a number of literatures. His work on demand estimation (joint with Steven Berry and James Levinsohn) led to the well-known “BLP model” – a flexible approach for estimating demand in product differentiated markets that has been widely adopted by academics and practitioners alike. His work on production function estimation (joint with Steven Olley) led to a new approach for estimating productivity and spurred a huge follow-up literature. His work on dynamics has been foundational.
Robert Porter has made several important theoretical and empirical contributions to the study of collusion, especially in the context of auctions. Like Bresnahan, he demonstrated how one can develop theoretically informed empirical models of an industry or auction in order to estimate the structural parameters of the model and detect collusion. His work in this area has established him as another of the founders of the new empirical industrial organization.
Though the methods Bresnahan, Pakes and Porter introduced in the literature were initially developed with industrial organization in mind, they have had several applications in other areas of economics, including macroeconomics, international trade, health, and environmental, where credible estimation of demand, productivity and firm behavior is a prerequisite for evidence-based policies regarding anti-trust, regulation, trade and other forms of market liberalization.