With Oliver’s speech, we got some insights into the inception and inner workings of the Grossman-Hart team.  It was formed when both were put into the same session at the Stanford theory conference.  Sandy was working on informativeness of rational expectations equilibria and Oliver on general equilibrium with incomplete markets so their combination  in one session was not natural.  But they hit it off famously, despite political differences.  In his speech, Sandy said he was a moderate and Oliver was extremely left-wing and, when it was his turn, Oliver said he was a moderate and Sandy was extremely right-wing.

The Grossman-Hart team met intermittently in the various locations where the two members were located, with Grossman being the more peripatetic of the two.  They risked life and limb and went for long walks in the dodgy areas of Philadelphia and Chicago.  On one visit, Sandy suggested two topics they might work on, the “theory of the firm” and “supply function equilibria”. Not sure what the latter amounted to, but Oliver suggested that he might have become an auction theorist if he had chosen the latter topic. Fatefully, he decided on the former topic. They went back and forth several times for around ten days, coming up with models and then throwing them out till they finally honed in on the model that made its way into JPE.  They actually had a second model based on incomplete information but they decided to delete it from the final version (it was published in a book).

All this information comes from Oliver’s dinner speech.  He went on to say that Sandy has affected his thinking in many other ways.  He had tended to separate his economics from his political beliefs.  Once when Grossman was visiting London to work with Hart, there was a strike of some sort.  Oliver instinctively supported the strikers but, in debate with Sandy, Oliver eventually changed his mind.   He began integrating his politics and his economics. (Parenthetically, this suggests that both of them see theory not just as a mental-master-of-your-own-domain exercise.) Oliver ended though by defiantly returning to his own moderate or left-wing tendencies, depending on your point of view.  He said that while the National Heath Service is not first-best or even the fourth best, it is definitely better than the US version which is tenth best.  He added that Sandy had enjoyed the dental care given by the NHS on a Cambridge visit when he had a toothache.

Grossman offered some final remarks.  He had come up with the question “what is firm” in response to arguments made by ATT to avoid vertical disintegration.  They argued that if a non-ATTphone were plugged into the ATT network it might cause its complete collapse.  Hence, they argued that non-ATT phones should not be allowed for use on the ATT network.  Grossman thought this argument was crazy and started wondering about the proper definition of the firm.  He ended by discussing his toothache.  While a root canal was considerably cheaper in England, Grossman complained that the area administered to by English dentists was still sore. QED?