I was born in London in 1948. My parents were both doctors. My mother was a gynecologist at a time when women doctors in the U.K. were relatively uncommon; she was a German-born Jew, who had left Germany in 1933 just after Hitler came to power. My father was an epidemiologist of some distinction whose particular interest was TB. He also was one of the key players in the 1948 Streptomycin trial, which put randomized control trials on the map. He came from a long-standing Anglo-Jewish family. We lived in comfortable but by no means luxurious middle class circumstances in the Hampstead area. I was an only child. My parents had had a son about a year before who died a few hours after being born, and so my arrival was particularly welcome. Perhaps because of this my parents were quite protective of me. Since my mother worked, a caregiver, called Mrs. Shealey, helped out during my childhood. My father was 48 when I was born – very old for a father at the time – but he lived to 106. My mother died at 93. I had a close and loving relationship with both of them.
My first regular school was a progressive one. My parents were left-wing and they thought that a non-traditional school might be a good option. At that time children in England took the eleven-plus, a forbidding test that sorted people out into “academic” and “non-academic.” My memory is that when I was eight, only one person in the class of eleven year-olds in my school passed the exam. Given that they mostly came from backgrounds like mine, my parents panicked and decided to go in absolutely the opposite direction: they entered me for admission to a “public” (i.e., elite, private, expensive) school in our neighborhood, called University College School. Part of the admission process, I recall, was a personal interview with the head-master of the junior school. He asked me to solve a long-division problem and when I showed him my answer he said there was a mistake. I disagreed and turned out to be right. Soon after my parents learned that I had been admitted, and I entered the school just before my ninth birthday.
I take a few things away from the admission incident. I already had some intellectual self-confidence and was stubborn (even though I was actually quite shy). I had learned something after all at my progressive school. I was reasonably good at mathematics.
U.C.S., as it was known, provided me with a very good education. The quality of the teaching was high, the school was intellectually serious, and many of my peers were bright. I liked mathematics and there were plenty of opportunities to advance in this area. I moved to the senior School at 13, and shortly after won a scholarship, so that my parents did not have to pay any more. At age 15, having passed several (nationally administered) O-level exams (including Latin and Greek!), I specialized for my remaining time in mathematics, physics and chemistry, leaving the school at 17. I continued to like mathematics best, and had some minor interest in science. I spent as little time as possible on history or literature (which was very easy to do after age 15).
As I look back, I have generally good feelings about U.C.S., but also some reservations. It was all-boys, which I do not think was good for me. I could have benefited from feeling comfortable with girls earlier in my life. Also, although by English public school standards the school was quite liberal, one still had to call one’s (predominately male) teachers “sir,” and there was always the threat of corporal punishment although this was rare. I managed to avoid it. Interestingly the headmaster of the senior school did not like to carry out corporal punishment and so it was left to the aptly-named Vice Master to administer a beating or two when the headmaster was away (the Vice Master was actually one of the most intellectual teachers in the school and I got on quite well with him).
At age 17 I was admitted to King’s College Cambridge. I had hoped to win some sort of scholarship, which although not worth much was prestigious and guaranteed that one’s name was memorialized on a wall at my school. But that did not happen. The senior tutor at King’s at the time thought that I would be better off not continuing with mathematics – that was for “Rolls-Royces,” I recall him saying – but, stubborn as ever, I ignored his advice and spent the next three years studying for a mathematics degree, which given the Cambridge system meant doing nothing but mathematics. I was good enough to receive a middling degree in 1969 – a class 2. I recall that on the day the results were announced – they were posted on the wall of the Senate House (and later printed in the London Times – things were very public in those days), I decided to sleep in, but one of my fellow mathematicians went to look at them and by arrangement came to my room to report. He told me that I’d got “what was expected” (he received a first). I remember thinking both that he was exactly correct and that I wouldn’t have put it that way.
King’s was an exciting place to be in the late 1960s. The students were a gifted group. Among the people I knew well in my class, either then or later, were Mervyn King (later to be Governor of the Bank of England), Martyn Poliakoff (a cousin of mine, and a distinguished chemist and foreign secretary of the Royal Society), Ben Friedman (a colleague now in the Harvard economics department), and Tony Judt (the historian, who sadly is no longer with us). Unfortunately, King’s was all male at the time, which postponed my feeling comfortable with women even further.
The worst thing about my education both at school and later at Cambridge is that I never learned to write. Since others did, this must have had a lot to do with me. But I think that I could have benefited from less specialization in mathematics and sciences early on. Perhaps some of that time spent solving differential equations in fluid dynamics and mechanical engineering could have been devoted instead to literature or history. Still I have to say that the grounding in mathematics has served me very well in my career as an economic theorist.
I graduated at a time of student rebellion and the idea of a job did not seem attractive. The answer was, of course, further study. But in what? People told me that mathematics was being used in economics, and I had a second reason for choosing that field. I was quite left-wing at the time and liked to argue about politics. But I found that at some point my fellow-debaters brought in some consideration like the balance of payments and at this point I lost the argument. Clearly I had to learn something about this field.
So study in economics it was, and I applied and was admitted to a master’s program at Warwick University. The M.A. was a one-year course, but since I knew no economics the plan was that I would spend the first year catching up on basics and the second year doing the real thing. Warwick was a new and relatively small university at the time, which meant that the classes were quite intimate compared with large Cambridge lectures (although not with Cambridge supervisions). I felt immediately a vitality about economics that I had not felt about mathematics. Mathematics at Cambridge had been taught in a very sterile way: Theorem, proof, theorem, proof, lemma, proof, etc. Nothing was ever said about when anything had happened or who had done it. Was that result in Group theory proved three hundred years ago or last week? I had no idea.
Economics was refreshingly different. Since it was still a relatively new field, one felt that the frontiers were not that far away (this is less true nearly fifty years later). Names and dates were thrown around all the time. I liked this and felt an immediate affi nity with the subject. I learned macroeconomics from Dick Sargent, international economics from John Williamson, and mathematical economics from Richard Clarke (who sadly died young). Some of the mathematics that had seemed very dry seemed much less so when I saw how it could tie in with the world.
I owe Warwick a great deal because it gave me the start in my new life. However, much as I liked the economics department, I was quite lonely. There weren’t too many graduate students and many of my peers were married and showed up to class and then went home. I think that things are very different now.
In my second year I started to think about what to do next. John Williamson, who had a Ph.D. from Princeton, encouraged me to consider graduate work in the U.S. I had worked in New York for a few weeks in the summer of 1970 and toured some of the country with a friend by Greyhound bus, and the idea of spending more time there was appealing. So I decided to apply. In those days I was not very well organized and by the time I put in my applications it was close to the deadline, and, by bad luck, a postal/mail strike in the U.K. had just started. In those days there was not much alternative to regular mail and so my applications were destined to languish for weeks.
But then John Williamson made a wonderful suggestion. He was going to Princeton for a few days, and he offered to take my application by hand. A few weeks later I heard – the postal strike was now over – that I had been admitted to Princeton and offered a decent financial package. I also received responses to my snail (almost literally)-mail applications. I think that I was admitted by Penn but I was rejected by MIT, Harvard, and Yale.
At the time I put my MIT, Harvard, and Yale rejections down to the fact that my applications had arrived late. Having been on the other end of the process I now know that deadlines are often waived for strong candidates. My record, good at Warwick but less good at Cambridge, was probably not attractive enough for the top places. (Princeton was less competitive then than it is now.)
So in September 1971 I arrived in Princeton. I remember immediately liking the place. Yes, it was mock Oxbridge, but it was also beautiful. And I liked the steamy, hot weather. It made such a change from the almost non-existent summer in England (global warming has changed things a bit). As soon as classes started I also realized that the Princeton canvas was bigger than what I had experienced before in economics. There were many more fields covered, the faculty was larger and more diverse. It was exciting.
Perhaps the biggest difference between Princeton and anywhere I had been before was the Graduate College. Built like an Oxford or Cambridge college, and located a mile or so from the main campus, this was where many of the graduate students lived and, amazingly, there were both men and women. So Princeton came with a rather pleasant social life. One met one’s fellow students from many fields over dinner, which was quite good particularly compared with British student fare of the time. There was a certain formality – gowns had to be worn – but the atmosphere was anything but.
One of my fellow graduate students was Rita Goldberg, who was studying comparative literature (and who later successfully got the college to abandon gowns!). We became a couple in the spring of 1972, married in 1974, and have been together ever since. We now have two sons, Daniel and Benjamin, two grandsons, Gabriel and Jamie, and a daughter-in-law, Ellen. So I have very fond memories of the Graduate College and of Princeton!
I made many friends at Princeton, some of whom I still see or am in touch with. Although the department was not as strong as today, there were some very good students and faculty. I found that my background in mathematics and my exposure to mathematical economics at Warwick helped me to navigate the program and I was able to finish all my exams after one year in spring 1972. Early on I linked up with one of the professors, Dwight Jaffee. He was looking for a research assistant and I volunteered. We ended up writing a paper together on financial intermediation – my first publication. In the fall of 1972 Michael Rothschild arrived from Harvard as a professor. This was a hugely important event for me. Before Mike’s arrival I was not really aware that there was an area called economic theory that was distinct from mathematical economics. This was the time when work in asymmetric information was at its peak and Mike was of course a central figure. For me it was an eye-opener to see the same degree of rigor that I was familiar with from general equilibrium theory (which I had learned from Richard Cornwall) being applied to “small” models.
But I did not at the time pursue the small model path. I had become interested in the question of the objective function of a firm. What is the generalization of profit maximization in a world of uncertainty? This led me to the theory of general equilibrium with incomplete markets and I became aware of an important paper by Peter Diamond on the efficiency of a stock market economy. At some point I realized that Diamond’s results did not generalize once one moved beyond the two-period, one-good economy that he had considered. I think that this must have been in the early fall of 1973. From one day to the next I had (the main part of) my thesis. Of course, it took some time to work out the details and write it all up, but I was on my way as a researcher. I received my Ph.D. in 1974.
I have jumped over an important episode. Mike Rothschild was a very supportive advisor and, given that there were few theorists or mathematical economists at Princeton, he thought that I would benefit from attending a sixweek (or so) summer workshop in mathematical economics at the University of Massachusetts organized by Hugo Sonnenschein. Hugo was kind enough to invite me and in the summer of 1973, Rita and I moved up to Amherst. It was the time of the Watergate hearings and the two of us watched the proceedings on TV in the evenings after I had attended the conference sessions during the day. This was the first conference that I had been to as a nascent researcher and the experience was wonderful. Many interesting papers were presented by many interesting people, and I lapped it all up. Hugo and his wife Beth were wonderful hosts and have remained life-long friends. Rita and I also met Andreu Mas-Colell there (and his wife Esther a year later), and Andreu and Esther have remained life-long friends too.
I even presented a paper at the summer workshop. It was some joint work with Harold Kuhn on a proof of the existence of equilibrium without the free disposal assumption (later published in the Journal of Mathematical Economics). Harold had a joint appointment in the mathematics and economics departments at Princeton, and was another important influence on me. He was a mesmerizing teacher and it was exciting to work with him even though what we produced had no great significance.
In the fall of 1973 I started looking for a job. My parents had been pushing me to return to England and Rita, who was still working on her Ph.D. thesis, and I decided to try it out. U.K. universities did not have a presence in the U.S. job market in those days, and so candidates had to apply individually for positions. Michael Rothschild knew Tony Atkinson, a professor at Essex University, well, and I applied and was offered a job there. So in September 1974 Rita and I decamped to Wivenhoe and I started teaching at Essex in October. The department at Essex was quite good – as well as Tony, Christopher Bliss, Ken Burdett and Peter Phillips were colleagues (so was Peter Hammond, but he was away that year) – but morale was not high. This was partly because U.K. universities were going through bad times (these only got worse over the subsequent ten years), but also because Essex had a reputation dating back to the 1960s as a bastion of left-wing student activity, which did not put it in good stead with the funding authorities. I vividly remember during my year there that someone came in to my offi ce and removed one of the bulbs in my ceiling lamp as an economy measure. (Sometimes I feel that this was a dream but I don’t think it was.)
In the summer of 1974, I had met Frank Hahn at a summer workshop at Stanford, and he wrote to me and said that there was an assistant lecturer position at Cambridge and would I like to apply. Given the uncertain situation at Essex I decided to do so, and got the job. Rita and I moved to Cambridge in September 1975 and that was our home for the next nine years or so. I also became a Fellow of Churchill College.
Returning to Cambridge was interesting, exciting and enjoyable in many ways. First, I was going back in a different field and to a different college compared with my undergraduate days. Second, given its status and the college system, Cambridge was better able to withstand the poor economic climate than most other U.K. universities. Third, although the faculty was divided into different economic camps (neoclassical, Marxist, neo-Ricardian, etc.), Frank Hahn had managed to assemble a small, but superb, group of theorists around him, including David Newbery and Roger Witcomb as regular teaching staff, and Douglas Gale, Eric Maskin, David Kreps, Louis Makowski and Mark Machina as research fellows or visitors. So there was constant discussion of ideas and the intellectual environment was extremely stimulating. The period 1975–1981, when I taught at Cambridge first as an assistant lecturer and then as a lecturer, was one of the most exciting of my life.
I have mentioned that when I graduated from Cambridge in 1969 my writing skills were non-existent. I had to learn to write when I started to do economic research, particularly at Princeton, and it was a painful experience. Rita, with her knowledge of literature, was incredibly helpful. I bothered her endlessly about comma placement and the like. Semi-colons were a revelation. But gradually I started to make some progress.
I do not know whether my lack of writing experience can explain one very unpleasant incident that occurred in my early years. I had written a paper on portfolio theory – not part of my thesis – when I was at Princeton and I submitted it for publication in the Review of Economic Studies. They accepted it with alacrity. I was not very good at titles. The first title was very long and I decided to shorten it before submitting the final version. The galley proofs arrived with the shortened title and I returned them. At some point I showed the paper to a senior economist, and he said that he liked everything but the title! I realized that in shortening the title I had made it misleading. Was it too late to change it? I phoned the production editor, who said, it’s not too late, just send me a letter with the new title. I remember feeling some concern, but thought that the production editor must know what he was doing, and went ahead. In October 1975 the journal landed in my letter-box and I discovered with horror that one word of the new title had been printed incorrectly (in every place in the journal). Interestingly, the replacement word did not change the meaning of the title but made it incredibly clumsy.
I recount this at some length because the experience was extremely humiliating. A clumsy title does not matter to others but it does matter to the author, particularly one who is feeling his way on how to write. The unpleasantness has remained with me for years.
One way to think about this is that the problem arose because the contract between journals and authors is incomplete. I wish that I could say that this prompted my interest in incomplete contracts, but I fear that this is not the case. Turning to more pleasant things, a major intellectual event in my life occurred in 1976 when I attended the IMSSS summer workshop at Stanford (for the second time). Mordecai Kurz, who ran the workshop, decided that it would be good to have a session on finance, and designated Sanford Grossman and me to run it. I had met Sandy briefly in 1975, and knew that he was a wunderkind, but that was our only contact up to that point. We started working together for the session. I still remember when I first learned from Sandy, who was already well known for his work on price informativeness, that he was almost five years younger than I was. There followed what seemed a long silence. I was literally speechless. Fortunately, I was able to recover and we worked together for the next twelve years or so.
Sandy and I worked on many topics, including the objectives of firms, takeovers, capital structure, and the principal-agent problem before embarking on work on incomplete contacts, the topic for which I have been awarded the prize.
Sandy was intellectually mature beyond his years and I learned a great deal from him, particularly about the Chicago approach to economics. Sandy is one of the most brilliant people I have ever met. At some point he decided that he wanted to apply his economic ideas in the financial world and he has been extremely successful at that, but I feel that his departure was a great loss for economics.
Promotion in the Cambridge economics faculty was almost impossible in the late 1970s and early 80s, partly because the faculty could not agree on anything. At some point it was time to move on and I was offered and accepted a professorship at the London School of Economics. I started teaching there in January 1982 but continued to live in Cambridge. Commuting was not easy. As I started my new job there was a national rail strike.
It felt good to have a senior position and L.S.E. was a stimulating place to be. Among my colleagues were Tony Atkinson, Partha Dasgupta, Christopher Pissarides, Ken Binmore, Richard Layard, and David de Meza. While giving a seminar at L.S.E. shortly before I arrived, I met John Moore, who was finishing his Ph.D. there. In 1983 we started to work together. Meeting and working with John has been the second great intellectual event in my life. Over a roughly 25-year period we continued the work on incomplete contracts that I had started with Sandy, taking it in new directions, including foundations, corporate finance, and the introduction of behavioral elements. John is a brilliant economist, with an extraordinary mathematical mind, who on several occasions was able to establish propositions and theorems that I could never have proved myself. John also provided important psychological support to me. We have had a close and intense friendship over many years, which extends to Rita and his wife, Sue.
As I have said on several occasions the work for which I won the prize could not have been done without Sandy and John.
In early 1984, Rita and I started to think seriously about whether we should move to the U.S. There were several reasons for this. Rita’s fellowship in Cambridge had come to an end and she was looking for a job. The possibilities in the U.K. in her field did not look good. Indeed, given the cuts imposed by the Thatcher government, academic prospects in the U.K. did not look good for me either. In 1984 I took a visiting position at the Massachusetts Institute of Technology and this was converted into a permanent position in 1985. The family moved to Lexington, Massachusetts, where Rita and I still live.
When I arrived MIT had probably the best economics department in the world. It was thrilling, but also quite intimidating, to be a professor there. Greatness was all around. Paul Samuelson still came into the department, Bob Solow was still teaching, and Franco Modigliani was only a couple of floors away. The younger people were very impressive too. Among my colleagues were Peter Diamond, Eric Maskin (who soon left for Harvard), Jean Tirole, and Drew Fudenberg. I spent nearly nine years at MIT, and it was a very productive period for me. Much of my work on financial contracting was done during these years. But, eventually, for various reasons, a change made sense, and in 1992 I was offered and accepted a position at Harvard (not too far away, but a shorter commute from Lexington!). I started there in July 1993.
Anyone reading this far will probably think that I was restless, and there is some truth to this: I did move around a lot. But since arriving in the Harvard economics department, and I have been there now for over twenty-three years, I have never felt a desire to move again. This is home. The main reason for this, I think, is that not only do I have great colleagues and great students, but also the place is really friendly. There is no hierarchical structure and people are keen to help. The place is also run democratically (at least among the senior faculty!). Decisions are not made behind closed doors, everything is argued out at meetings, and the people who are best prepared and make the best arguments win, whether they have been there for years or are new. This is refreshing.
I have formed close intellectual bonds with several of my colleagues, particularly Andrei Shleifer, Philippe Aghion, Elhanan Helpman, Pol Antras, Eric Maskin, and Jeremy Stein, who have all contributed to the incomplete contracting agenda in one way or another. Andrei suggested in the mid-1990s that incomplete contracting ideas could usefully be applied to the question of whether services paid for the government should be provided by private contractors or public employees. This led to a paper that the two of us wrote with Robert Vishny, which included an application to prisons. The prize committee put quite a lot of weight on this paper and since the prize was announced I have found myself talking about it more than any of my other contributions. It is a highly topical issue that journalists and the public can relate to.
My relationship with Andrei Shleifer transcends work. He is an extraordinary person, who has been a constant source of encouragement and wit for more than twenty years. I have had my down periods and Andrei has always pushed me up, telling me that my work was really important when I doubted it.
Philippe Aghion has also been tremendously supportive over the years and, together with Luigi Zingales, Mathias Dewatripont and Patrick Legros, organized a wonderful conference in Brussels in 2011 to celebrate the twenty fifth anniversary of my 1986 paper with Sandy Grossman. This led to a book published in 2016 by Oxford University Press.
Being at Harvard has had many other benefits. I have formed a close relationship with members of the Law School, particularly Lucian Bebchuk, Louis Kaplow, Kathryn Spier, and Stephen Shavell. I co-run a law and economics seminar with several of them. My exposure to these colleagues and to law and economics more generally has improved my understanding of contracts, and contributed immensely to my intellectual life and development. Cambridge is also a large intellectual community and I have continued to have close ties with people from MIT, including Bob Gibbons, Bengt Holmström (who moved to MIT in 1994), Birger Wernerfelt, and Michael Whinston. George Baker was also an active member of this community before he left Harvard Business School for the private sector.
My relationship with Bengt Holmström has been very important. We have written two papers together but more than that we have been close friends for many years and have talked not just about economics, but about our lives, and our hopes and disappointments. This has been invaluable.
As I look ahead to the next period of my life I feel a sense of anticipation. Being awarded the Nobel Prize is wonderful in many ways, and I am excited to explore some of the new possibilities that have opened up. At the same time many aspects of my life will stay the same. In the last few years I have embarked on a new line of research with Luigi Zingales and I hope to continue this. I plan also to spend a lot of time with my family. Rita and I are very lucky to live near one of sons, our daughter-in-law and our grandsons, and we see a lot of them, and vacation with the whole family, including our other son, each summer on Martha’s Vineyard, which is fantastic. I hope to continue to swim regularly for my physical and mental health, and to play the piano. I used to play as a kid, stopped for decades and then returned about eight years ago with the help and encouragement of my teacher, Jennifer Baverstam Weitzman (the wife of my colleague, Marty Weitzman). I keep thinking that with a bit more practice I could rise above the mediocre and although this is probably not so I will keep trying.
This autobiography/biography was written at the time of the award and later published in the book series Les Prix Nobel/ Nobel Lectures/The Nobel Prizes. The information is sometimes updated with an addendum submitted by the Laureate.