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The Nobel Prize in Economics for 2012 was awarded to Union Minister from India, Shri Kapil Sibal and Shri P. Chidambaram, for their groundbreaking work on the zero loss theory of allocation of state owned natural resources to private sector entities without recourse to transparent, auction based bidding.
The two ministers, through their research and public pronouncements, challenged the high priests of Welfare Economics who recommend competitive auctions to allocate natural resources in well developed, competitive markets.
They went on to demonstrate that under certain conditions, ad-hoc, discretionary, opaque allocations of natural resources and assets to private players maximizes not only revenues to the exchequer but also overall welfare by keeping input prices down.
Their findings can help countries transitioning from command and control to market economies decide how best to transfer assets and resources to the private sector, and therefore have profound implications for countries such as India. Their work has already deeply influenced policy makers in other countries, including a few Banana Republics in Latin America, and countries from the Communist bloc, in gifting away natural resources to oligarchs using similar discretionary methods. Their stellar research efforts have also ensured respectability for what was, hitherto, derided as crony capitalism by rigorously proving its salubrious effect on overall welfare.
The Nobel Committee took this into account while deciding to award the prestigious prize to the two Indian Ministers for what is now called the Chidambaram-Sibal Zero Loss Theorem of Natural Resource Allocation in Welfare Economics.
Shri Kapil Sibal first postulated the theorem in 2011 during the course of a media briefing and proceeded to validate it with the help of a controlled experiment in the form of licensing 2G spectrum based on a first come, first serve basis conducted under the supervision of Shri Chidambaram, with Shri Raja, serving as research assistant.
Subsequently, the duo’s research efforts got a shot in the arm after their boss and renowned economist in his own right, Dr. Manmohan Singh, took interest in their work and provided them with times series data from 2004 to 2012 of coal block allocations under his watch which satisfied the conditions specified by Shri Sibal for the zero loss theory to apply.
Using sophisticated econometric models, Shri Chidambaram went on to not only empirically validate but also add a corollary to Shri Sibal’s theorem: losses are impossible if the allocated resources are buried under the earth.
Taking time off from their busy public duties, the duo published their seminal work in the Journal of Development Economics to academic acclaim.
Both the Nobel laureates have dedicated their prize to Dr. Manmohan Singh. “As an economic scholar, he gave us a free hand in conducting these experiments to refine and validate the Zero Loss Theorem. It is to his credit that we not only crafted economic policy but also proved a new theorem despite not even having a PhD in economics,” raved Shri Chidambaram with tears in his eyes.