Introduction
Paul Klemperer was born in Southampton, England, in 1956. At the age of six, he moved to Birmingham with his parents who were both academic scientists: his mother Ruth at Aston University and father Hugh at the University of Birmingham.1 He went to the local Bournville Primary School and later won a scholarship to King Edward's School.
From an early age, Klemperer was fascinated by geometry. On his teenage bedroom wall hung a poster of Albrecht Durer's engraving Saint Jerome in His Study. The engraving did not catch his attention because of his interest in Jerome's translation of the Hebrew Old Testament and Greek New Testament into the Latin around 400 CE. It was the geometry of perspective (of which Durer was a pioneer): the way the parallel lines met at a point in the background. This interest in geometry was to be a lasting influence on how Klemperer thought about the issues and problems he studied later in life. He was admitted to study Mathematics at Cambridge University in 1975, and for his final year he switched to the Engineering Tripos, in order to be able to focus on more applicable1 His family did not follow the musical career of his distant relative, the conductor Otto Klemperer.
H. Dixon (*)
Cardiff Business School, Cardiff, UK e-mail: DixonH@cardiff.ac.uk
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mathematics, especially operations research (OR). Before going to Cambridge, he had vacations: For IBM in Birmingham, where he developed an early computer-aided design program. He also worked during his university vacations: For IBM again, for Monsanto in its world headquarters in St Louis, the United States, and for BP in London (all doing programming and OR).
At the end of the course in 1978, he was eager to get back into the real world, joining Arthur Andersen and Co.'s management consulting division in London (this was subsequently spun off as Accenture). His most significant project was a secondment of about a year to the Department of Health and Social Security. It had developed a complex linear-programming model to allocate resources both within the National Health Service (NHS) and among the NHS and local authorities (who delivered social care) and housing authorities (then a different level of local government). Unfortunately, the model was so complex that no one really understood it, so no one really trusted its answers. His most important contribution was to develop a much simpler model, which not only generated very similar answers but also brought out the intuition clearly, so users trusted the answers and could understand the effects of modifying the assumptions or changing the resources available. The work done in this period later led to Klemperer and McClenahan (1981). Klemperer's ability to make the complex simple to be comprehensible to policy makers was to stand him in good stead later in life when he advised the Bank of England during the financial crisis.
In 1980, Klemperer was awarded a Harkness Fellowship to pursue a two- year MBA at Stanford University. However, at an early stage, he decided he wanted to do a PhD, which he started in 1982 and completed in 1986. The faculty members advising his doctorate were Tim Bresnahan, John Roberts and Jeremy Bulow. Bulow not only advised on the thesis research but also started joint work with Klemperer that resulted in his first two economics papers (see Bulow et al. 1985a, b).
At the end of 1984, Klemperer moved back to England to take up a post as Lecturer in Operations Research and Mathematics at Oxford, based at St Catherine's as college Tutor in Economics. He was to remain in Oxford for the rest of his career to date. He became a Reader in 1990 and moved to Nuffield College in 1995 becoming the Edgeworth Professor of Economics following the retirement of the first Edgeworth Professor Sir James Mirrlees.
He inherited not only the post but also the room and some of the furniture from Mirrlees. Klemperer remains in this post at the time of writing.Klemperer's research can broadly be divided into two main parts. The first is oligopoly theory, interpreted in a wide sense, with 20 or so publications covering the decade at St Catherine's. His best-known research in oligopoly theory is on switching costs. The second part is auction theory, which started with the renewal of his partnership with Jeremy Bulow (see Bulow and Klemperer 1996) and continues to the present.
Klemperer’s work in auction theory led to his involvement in public policy. This included designing the auction for the sale of the British 3G Telecom Licences in 2000 and later the design of artificial markets for the Bank of England (and other central banks) to make loans to commercial banks for assets of differing quality (including toxic assets) in the aftermath of the financial crisis.
In this chapter, I will first deal with the two stages of Klemperer’s research and then go on to look at his involvement advising public bodies about designing auctions.
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