Francesco Decarolis Is the New Avvocato Giovanni Agnelli Associate Professor in EconomicsHIS STRAND OF RESEARCH, EMPIRICAL INDUSTRIAL ORGANIZATION AND MARKET DESIGN, ANALYZES THE WORKINGS OF MARKETS AND DESIGNS INNOVATIVE SOLUTIONS TO PROMOTE COMPETITION AND SOCIAL WELFARE
In 2013, the Fondazione Agnelli established a permanent Associate Professorship in Economics named after Avvocato Giovanni Agnelli in order to make the most of young research talents on a rotating basis. In a few days, Francesco Decarolis will succeed Chiara Fumagalli as the holder of the Professorship and the occasion will be marked by a Lectio Inauguralis (27 May 2019, 3pm, Aula Magna Gobbi) in which Prof. Decarolis will present his research program.
«In the last 30 years», Prof. Decarolis says, «microeconomics has been enriched by new methods to analyze data and link data to theoretical models of consumers’ demand and firms’ strategies. This allows us to better understand how markets work and how to design new rules in order to promote and preserve competition. Thanks to this approach, called “market design”, it is sometimes possible to single out the truly critical features of a market and plan innovative, surgical interventions, capable of enhancing social welfare».
His studies have already contributed to the debate surrounding the introduction of new market rules both in Italy and in the US.
In Italy, he analyzed public procurement auctions and observed that the mechanism most frequently used to award contracts for public works is deeply flawed. When procuring a contract, the benefits of a low price at the awarding stage must be traded off with considerations about the reliability of the bid during the contract execution stage. Sometimes you want to avoid giving the contract to the lowest price if this bid is “too good to be true.” One of his research papers, however, has shown that the rules adopted by Italy in the late 90’s to balance the risks of “too good to be true” have backfired, fostering collusion and inefficiency. «When rules are dictated only by legal considerations, without taking into account economic incentives, they may backfire», he explains. These studies led him to collaborate with the Italian Antitrust authority in the identification of collusion cases in public procurement auctions.
In the US, since 2006, the over-65 have access to prescription drugs via a subsidized private insurance market. They can choose among insurance plans with determined features and the government subsidizes their purchase, whichever their choice. «The problem, here, is to set the right level of subsidy. If it’s too low, elderly people are likely to buy low quality products», Prof. Decarolis says, «and if it’s too high, it risks to be unsustainable for the public coffers. But is not just the level of the subsidy, it is also the system through which it is defined that can produce distortions in the market». In a 2013 hearing in front of the Congressional Budget Office, he explained how the system in place at that time was distorting insurers’ behavior and his observations weighed in to lead the following reforms of the system.
The same analytical framework can be used to study the new digital markets and Prof. Decarolis has thus identified analogies with traditional markets that cast some doubt on the idea that splitting up digital giants such as Facebook or Google would be the best solution to preserve competition.
In the 1990s, following the consolidation of the US hospital industry, a countervailing market power surged, when the insurance industry started its own consolidation and the new insurance giants became able to negotiate with the hospital conglomerates on a par. «In the same way today, in the online advertisement industry», Prof. Decarolis says, «Google seems to be a dominant player, but very large demand side intermediaries are coordinating the purchase of ad space for hundreds of customers. We’ve observed that, as the intermediaries consolidate, Google’s revenues decline. Now, Google is reacting by offering its own service in direct competition with these intermediaries in order to cut them out of the market. One might wonder if monitoring the evolution of this in-house Google system would be a better way to preserve competition than breaking up Google».
In developing his research for the Avvocato Giovanni Agnelli Associate Professorship in Economics, Prof. Decarolis will collaborate with PhD students and post-docs, as he’s always done in his academic careers. «One of the achievements I’m most proud of», he says, «is that a large share of my publications are in joint with people that used to be my students and are now accomplished researchers».
A Bocconi graduate in Economics of 2002, Francesco Decarolis obtained his PhD at the University of Chicago, where he studied auction markets with Nobel Laureate Roger Myerson. He’s been Assistant Professor at University of Wisconsin at Madison and Boston University and has been a Visiting and Adjunct Professor at University of Chicago, University of Pennsylvania, Columbia University, and Stanford University. In Italy, he worked at EIEF and the Bank of Italy. He’s been an Associate Professor at Bocconi University since 2017. He’s a member of the Economic Advisory Group Competition Policy of the European Commission – DG Comp. Over the years, his research projects have been awarded ERC, PRIN, NSF and Sloan Foundation grants.
by Fabio Todesco