The Principle-Agent problem

Paul Robert Milgrom was born in April 20, 1948 in Detroit, Michigan. Milgrom is the Shirley and Leonard Ely professor of Humanities and Sciences in the Department of Economics at Stanford University and professor, by courtesy, at the Stanford Graduate School of Business. He is a member of both the National Academy of Sciences and the American Academy of Arts and Sciences and a winner of the 2008 Nemmers Prize in Economics and the 2012 BBVA Frontiers of Knowledge award.

Milgrom was born to Abraham Isaac Milgrom (born in Toronto, Canada) and Anne Lillian Finkelstein (born in Detroit). He was the second of four sons. At the age of six, his family moved to Oak Park, Michigan and Milgrom attended the Dewey School and then Oak Park High School (Michigan). In high school, Milgrom learned to play and analyze chess. He soon shifted his interests in strategic games to bridge. Milgrom showed an early interest in mathematics and attended summer programs at Ohio State University and entered the Michigan Mathematics Prize Competition while in high school. Milgrom graduated with high honors from the University of Michigan in 1970 with an A.B. in mathematics. He was also actively involved in the Vietnam War protest movement. He worked as an actuary for several years in San Francisco at the Metropolitan Insurance Company and then at the Nelson and Warren consultancy in Columbus, Ohio. Milgrom became a Fellow of the Society of Actuaries in 1974. In 1975, Milgrom enrolled for graduate studies at Stanford University in the MBA program. After his first year, he was invited to the Ph.D. program, earning an M.S. in statistics in 1978 and a Ph.D. in business in 1979. His dissertation on the theory of auctions (Milgrom, 1979a) won the Leonard Savage prize. This also led to the first of his several seminal articles on auction theory (Milgrom, 1979b). His thesis advisor, Robert B. Wilson, would later become his collaborator in designing the spectrum auction used by the Federal Communications Commission.

Milgrom's primary research is directed to designing auctions for multiple unique but related items. Along with Robert Wilson, he introduced the initial design for sales of radio spectrum licenses in the United States. He has designed new auctions for Internet advertising and for procuring complex services. Research on incentives and complexity are combined to create auctions that are simple and straightforward for bidders, yet which dramatically improve resource allocation compared to traditional auction designs. According to his BBVA Award citation: “Paul Milgrom has made seminal contributions to an unusually wide range of fields of economics including auctions, market design, contracts and incentives, industrial economics, economics of organizations, finance, and game theory.” According to a count by Google Scholar, Milgrom’s books and articles have received more than 70,000 citations.

The following link is an 88 minutes' lecture, which Milgrom made on FCC in 2003: https://www.youtube.com/watch?v=7YYL1JFQ29I

In this 88 minutes’ lecture, Milgrom looks at several recent successful auction designs. These include the FCC simultaneous multiple-round auction which allocates spectrum, the National Resident Matching Program which matches doctors to hospital residency programs, and the EDF auction of power generation capacity. He also discusses recent academic research in market design, including empirical, theoretical, and experimental work.