Monday, November 26, 2007

Mechanism design and the Nobel Prize

So, the latest Nobel prize for economics goes to three people (Hurwicz, Maskin & Myerson) for work on "mechanism design".

The statement announcing the award: "The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures."

This sounds interesting as it develops on game theory but moves us away from the notion of perfect markets and recognises the role of self-interest, information asymmetry and so on.

Amongst other applications out in the real world include the design of the auctions for European 3G licences.

John Nash (as in "a beautiful mind") has been a key player in this whole field. Some talk about it being the basis of a Third Way between the market led capitalist approach and the command and control socialist approach.

I need to look into this some more but some readings can be found at:

http://www.voxeu.org/index.php?q=node/656
http://www.guardian.co.uk/business/2007/oct/15/ukeconomy.economics2