Jacques Drèze
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In memoriam: Jacques Drèze

Jacques Drèze, who passed away in September 2022, was one of the most influential European economists – for his scholarship, his policy engagement, and his institution-building. This column, written by two long-time colleagues, recounts some of his key contributions to macroeconomic theory and to the real-world policy challenge of high unemployment in Europe. They describe him as a great economist and great humanist, both on the scientific front and on the institutional and policy front. Among many other achievements, he created the Center for Operations Research and Econometrics in the 1960s, and was one of the founding fathers of the European Economic Association, becoming its first president in 1985.

Jacques Drèze passed away in September 2022 in Verviers, the town of his birth in August 1929.

For us, who had the chance to spend our career, or part of it, at the Center for Operations Research and Econometrics (CORE), created at his initiative in 1966, Jacques has been a model and a guide with a clear view, a fantastic teacher and a devoted adviser. Many, in many places, have benefitted from Jacques's immense knowledge of economics and from his permanent support, both scientific and personal.

He was a beautiful mind and a beautiful heart: a beautiful mind, essentially motivated by the project of unifying economics and its related fields, using quantitative methods, looking for the macroeconomic implications of microeconomics, developing econometric tools and applications for economic policy; a beautiful heart, deeply concerned by human wellbeing and the disadvantaged, as exemplified by his work on the value of life, on labour management, on public good provision, on unemployment in Europe and on Third World debt.

He was also concerned about the effective functioning of institutions, such as the future of the university, or the role of the EU in economic and social security. CORE and its prestigious visitors programme, thanks initially to support from the Ford Foundation, was his initiative, as well as the European Doctoral Program in Quantitative Economics (EDP) involving the London School of Economics, the University of Bonn and the University of Louvain.

The contributions of Jacques Drèze are exceptional not only in their number, and their innovative and path-breaking character, but also in their diversity. This diversity, well spelled out in his 1971 presidential address to the Econometric Society, corresponds to the initial research programme of CORE and to the different fields investigated by its members.

But for Jacques, this diversity is mainly apparent and can be explained by two objectives that underlie all his work: the extension of economic models to uncertainty (for real world relevance) and their integration into a general equilibrium theory (for a unified conceptual approach). Even papers that seem more distant from these objectives, such as his seminal work on 'tâtonnement processes' (Drèze and de la Vallee Poussin 1971, Drèze 1972, 1974), or his work on game theory (mainly with Robert Aumann – such as Aumann and Drèze 2009) and his work on dynamic programming, have been integrated into his overall project.

Uncertainty has been present in Jacques’ research from the start, from his PhD at Columbia University in 1958 under the supervision of William Vickrey, introducing state-dependent preferences and moral hazard. Jacques has collected 20 Essays on Economic Decisions under Uncertainty (Drèze 1987a), a book that includes, for instance, his classic paper with Franco Modigliani on savings and portfolio choices under uncertainty (Drèze and Modigliani 1972).

It is also present in his Bayesian approach to econometrics for identification in simultaneous equations models, an approach introduced in a working paper in 1962, and subsequently developed in his famous 1976 Econometrica article using ratio-form poly-t densities and the so-called ‘Drèze prior’ (Drèze 1976).

But his most important line of research, resulting from introducing uncertainty and which has driven him to his fundamental contributions to macroeconomics and economic policy, starts from the observation that in the real world, markets are incomplete, and in particular that there are uninsurable risks and an inescapable trade-off between productive and risk-sharing efficiency. This trade-off can be exploited for improvement but first-best Pareto efficiency has to be replaced by the concept of ‘constrained efficiency’.

Jacques investigated incomplete markets in two directions. One direction adopts the point of view of the shareholders of firms facing such risks, introducing what is now known as the ‘Drèze criterion’ for shareholders collective efficiency. Still, as he discovered, a general stockholders equilibrium might be constrained inefficient (due to non-convexity of the feasibility set).

The other direction adopts the point of view of workers who cannot insure the risks associated with their future terms of employment. This direction was the one that Jacques pushed the most, since he was deeply concerned by Europe’s persistent and increasing unemployment during the 1970s.

His presidential address to the European Economic Association (Drèze 1987b), surveys the major effort he made at the time, developing both the theory of equilibria under price rigidities and quantity rationing (that is, ‘Drèze equilibria’) and the econometrics of quantity rationing models. There was also the major project (the European Unemployment Programme) that he directed with Richard Layard estimating the same model in ten countries and that inspired policy recommendations in Europe.

Jacques has always advocated a two-handed employment policy addressing simultaneously the demand side and the supply side. In an influential position paper produced by 13 Belgian and French economists (for a synthesis, see Drèze and Malinvaud 1994), public investment on the demand side and reduced labour costs for low-skilled workers on the supply side is advocated. Only the supply-side recommendation was followed.

Another important observation made later by Jacques (and inspired by early work by John Roberts; see Roberts 1987) is that price rigidities generally lead to a continuum of equilibria. We may have coordination failures and, with the same minimum wage and unemployment compensation, different rates of unemployment.

The work on this topic is surveyed in his presidential address to the International Economic Association in 1999 – see chapter 3 in his edited book Advances in Macroeconomic Theory (Drèze 2001) – where his work on models integrating money is also surveyed. Fixed nominal prices limit the indeterminateness of inflation rates, but introduce real indeterminateness.

The contribution of such a great economist and great humanist, both on the scientific front and on the institutional and policy front, has been well recognised by many honours worldwide. Jacques was one of the founding fathers of the European Economic Association, becoming the first president in 1985.

He has received 19 honorary doctorates, 16 from European universities, one from the University of Montreal, one from the Hebrew University of Jerusalem and one from the University of Chicago. He is a member or associate of several academies (the Belgian Royal Academy, the American Academy of Arts and Sciences, the Royal Netherlands Academy of Arts and Sciences, the British Academy, the Academia Europaea and the National Academy of Sciences in Washington).

Jacques graduated in Economics and in Business at the University of Liège in 1951. He obtained his PhD in economics at Columbia University in 1958. As CRB Graduate Fellow 1952-54, he visited several US universities (Columbia, Harvard, Chicago and Michigan). He was Visiting Assistant Professor at Carnegie in 1957-58 and joined the University of Louvain in 1958. He was the Andrew D White Professor at Large at Cornell University in 1971-77.

Jacques has also founded a large family (he has 11 great-grandchildren). Our affectionate thoughts go to his family and in particular to his sons and to Monique, who shared all along his values and his efforts. Monique and Jacques formed a perfect team, on the ground and on the sea.

We miss him immensely.

Editors’ note: A version of this tribute has also appeared on the websites of the Econometric Society, the European Economic Association and the Society for the Advancement of Economic Theory.

References

Aumann, R, and J Drèze (2009), “Assessing Strategic Risk”, American Economic Journal: Microeconomics 1(1): 1-16.

Drèze, J (1972) “A tâtonnement process for investment under uncertainty in private ownership economies”, in G.P. Szegö and K. Shell (eds.) Mathematical Methods in Investment and Finance, North-Holland.

Drèze, J (1974), Investment under Private Ownership: Optimality, Equilibrium and Stability" in J. Drèze (ed.) Allocation under Uncertainty: Equilibrium and Optimality, Macmillan.

Drèze, J (1976), “Bayesian Limited Information Analysis of the Simultaneous Equations Model”, Econometrica 44(5): 1045-75.

Drèze, J (1987a), Essays on Economic Decisions under Uncertainty, Cambridge University Press.

Drèze, J (1987b), “Underemployment equilibria: From theory to econometrics and policy”, European Economic Review 31(1-2): 9-34.

Drèze, J (ed.) (2001), Advances in Macroeconomic Theory, Palgrave Macmillan.

Drèze, J, and D de la Vallee Poussin (1971), “A Tâtonnement Process for Public Goods”, Review of Economic Studies 38(2): 133-50.

Drèze, J, and E Malinvaud (1994), “Growth and employment: The scope of a European initiative”, European Economic Review 38(3-4): 489-504.

Drèze, J, and F Modigliani (1972), “Consumption decisions under uncertainty”, Journal of Economic Theory 5(3): 308-35.

Roberts, J (1987), “An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages”, American Economic Review 77(5): 856-74.