The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2007 jointly to
University of Minnesota, MN, USA,
Eric S. Maskin
Institute for Advanced Study, Princeton, NJ, USA
Roger B. Myerson
University of Chicago, IL, USA
“for having laid the foundations of mechanism design theory”.
Say again? “Mechanism design theory?” Sounds like a class for patent lawyers who want to work for watch makers and wind-up toy manufacturers.
Nobel publicists were grand. They provided an explanation for what the theory does, without describing in any detail what the theory is:
The design of economic institutions
Adam Smith’s classical metaphor of the invisible hand refers to how the market, under ideal conditions, ensures an efficient allocation of scarce resources. But in practice conditions are usually not ideal; for example, competition is not completely free, consumers are not perfectly informed and privately desirable production and consumption may generate social costs and benefits. Furthermore, many transactions do not take place in open markets but within firms, in bargaining between individuals or interest groups and under a host of other institutional arrangements. How well do different such institutions, or allocation mechanisms, perform? What is the optimal mechanism to reach a certain goal, such as social welfare or private profit? Is government regulation called for, and if so, how is it best designed?
These questions are difficult, particularly since information about individual preferences and available production technologies is usually dispersed among many actors who may use their private information to further their own interests. Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals’ incentives and private information. 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. Today, mechanism design theory plays a central role in many areas of economics and parts of political science.
If you want understanding, you can start at the Nobel site with “Information for the Public,” and if you want to impress the finance department at your business, or scare the heck out of your principal, check out “Scientific Background.”
The important analysis: Are they products of, and testament to the quality of, U.S. public schools? Alas, the Economics Prize Committee didn’t provide biographical data.
Leo Hurwicz, now at the University of Minnesota, was born in Moscow, and took an LL.M. from Warsaw University in 1938. It’s unlikely he ever saw a U.S. public school.
Eric Maskin’s earliest education I can find was his 1972 degree from Harvard, in Mathematics. He’s now at the Institute for Advanced Study at Princeton. He was born in New York. I’m still looking for elementary and high school data.
And the same goes for Roger B. Myerson, now at Chicago. He was born in Boston. Public schools? Don’t know yet.