WASHINGTON, D.C. -- This morning brings the news that this year's Nobel Prize in economics has been awarded to Robert Merton. Hooray! We policy wonks might cheer, for Robert Merton is the inventor of the "doctrine of unintended consequences," perhaps the single most important and useful concept for policy analysis. But wait, this is just the Nobel committee's mischief. The "doctrine of unintended consequences" was promulgated by Robert K. Merton, the Columbia University sociologist, while this Nobel Prize is going to Robert C. Merton of Harvard University. (Most news accounts do not provide the all-important middle initial.) That's okay: Given the Swedish Academy's track record this year, the Academy probably thought it was giving the award to Thomas Merton (or maybe to Merton Miller again, a 1990 co-winner).

But there is an irony at work within this name confusion, though it may be some time before people come to appreciate it. Prof. Robert C. Merton won the prize for his highly technical and abstruse research on the pricing of derivatives, those arcane financial instruments seemingly invented by unemployed rocket scientists. Derivatives are highly useful in hedging risk in the global economy, which makes them more than mere playthings for bored investors. But more than a few investors, major corporations, and local governments have been brought low by miscalculations with derivatives think of Orange County Treasurer Robert Citron, who should perhaps be known as the "unabanker" for the way he blew up Orange County's finances in 1994 through the reckless use of derivatives.

Not relying on the financial marketplace to discipline the use of derivatives, our political guardians naturally wish to institute new regulations to protect us. Yet since the operation of derivatives is light-years beyond the cognitive ability of the average congressman, it has fallen to expert regulators to start the ball rolling. The SEC wants to institute new accounting rules for derivative securities that might significantly change the balance sheets of many corporations, and present a highly misleading impression of a corporation's financial health. (Greenspan and the Fed oppose these changes.)

If these new rules go into effect, two things are likely. First, Robert C. Merton can expect to pick up consulting fees that dwarf his Nobel award as companies and investors try to unscramble newly messy balance sheets. Second, Robert K. Merton is a lock for next year's Nobel Prize, as the intended consequences of derivatives regulation begin to manifest themselves.

---By Steven Hayward