John McMillan, expert on power of market forces, dead at 56

John McMillan, the Jonathan P. Lovelace Professor of Economics at the Graduate School of Business, died March 13 at his campus home of complications from cancer. He was 56.

"John in many ways epitomized the Stanford Business School," said Robert L. Joss, dean of the school and Philip H. Knight Professor. "He was a brilliant scholar; he made important contributions to microeconomic theory, but his special talent was in applying theory to real-world issues and problems. And he was a superb expositor. His book, Reinventing the Bazaar: A Natural History of Markets, is a wonderful exploration of why markets work or fail, based on deep theory but accessible to a lay audience."

McMillan was born in Christchurch, New Zealand, and was raised in that country. His lifelong love of mathematics was initially sparked by a remarkable high school teacher, Alan Ramsay, at Christ's College, Canterbury, and he went on to study mathematics and economics at the University of Canterbury, where he earned a master's degree in 1973. He began work on his PhD at the University of Canterbury and moved with his supervisor, Richard Manning, to the University of New South Wales in Sydney, Australia, and completed his doctorate there in 1978. His first academic position was at the University of Western Ontario, where he met Preston McAfee, with whom he collaborated extensively for the next 20 years.

In 1987, McMillan moved to the University of California-San Diego, where he was one of five founding faculty members of the Graduate School of International Relations and Pacific Studies.

In a series of articles in the 1980s and 1990s, McMillan, frequently collaborating with McAfee, who is now at the California Institute of Technology, wrote about how governments can minimize the cost of procurement of everything from battleships to french fries and efficiently sell assets like radio spectrum and oil tracts. The key to efficiency is proper market design, and McMillan was the foremost proponent of the fact that market design matters.

As consultant to the Federal Communications Commission, McMillan oversaw the implementation of the 1995 spectrum auctions, which were successful and imitated around the world.

McMillan's textbook on game theory, Games, Strategies and Managers (Oxford, 1996), brought modern game theoretic analysis to MBA education. Illustrations of the theory, such as the television network competition for broadcast rights to the Olympic Games as a metaphor for both auctions and incentives, provided dramatic examples of the insight and power of game theory applied to business settings.

During the period of transition of formerly socialist economies in East Asia and Eastern Europe, McMillan became fascinated with the question of what made markets work or fail. His colleague at the time, Michael Rothschild, now at the Woodrow Wilson School at Princeton University, recalled, "John often remarked that it was a terrible embarrassment to the economics profession that it seemed to have nothing useful to say about how to create a market economy, although he also observed that having nothing useful to say did not stop economists from offering advice." Traveling in Vietnam and China, McMillan developed both respect for and curiosity about the roots of entrepreneurship in these nominally socialist societies.

The central question concerning these transition economies was whether they should move quickly and directly to free markets—the "big bang" approach—or whether a more gradual transition would be better. McMillan led the group of scholars that argued for gradual transitions. The big bang approach, he argued, would only work if unrealistic assumptions were met about how markets work and grow, and in particular how market participants acted and interacted. While the big bang may have worked well after World War II in Europe, circumstances were different in this case. A big bang creates opportunities for all sorts of rent-seeking behavior, and not necessarily the kind that encourages the growth of a stable market economy.

McMillan came to the Stanford Graduate School of Business in 1999. He wrote prolifically on the broad range of economic, managerial and political problems that plague transition and developing economies. He was active at the Center on Democracy, Development and the Rule of Law (a research center at Stanford's Freeman Spogli Institute for International Studies) and the Stanford Institute for Economic Policy Research.

In 2002 his research and writing culminated in the publication of Reinventing the Bazaar (W. W. Norton), which articulates the power of market forces and the need for markets to be robustly well designed and regulated. Failure to harness market forces results in Soviet-style stagnation, while poorly designed markets lead to spectacular efficiency failures like the early emissions permit market or political failures like the New Zealand spectrum sales. The power of the ideas combined with the simplicity of exposition led to a Notable Book of the Year citation from the New York Times Book Review.

McMillan is survived by his wife, Patrice Lord; stepson, Tim; mother, Alice; sister, Jenny; and brother, Murray.

No memorial has been scheduled. In lieu of flowers, the family asks that memorial donations be directed to Oxfam or to a fund established in McMillan's memory at the Office of Development of the Stanford Graduate School of Business.