The Nobel Prize in Economic Sciences 2007

Abstract

Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson were awarded the Nobel Prize in Economic Sciences 2007 for having laid the foundations of mechanism design theory. The remarkable power of mechanism can be described as follows. Market systems in general and auctions in particular can be efficient economic institutions for the allocation of private goods. However, economic efficiency does not imply that an institution will be chosen by those participants who have the power to select it. Instead, one may expect the choice of economic institution to reflect the interests of the designer. Mechanism design theory can be used to analyse such situations and explain which mechanisms are preferred by the market participants, i.e. sellers and buyers. This is relevant not only for private goods, but in particular for public goods. Thus, L. Hurwicz, E. S. Maskin and R. B. Myerson developed a theory describing which market institutions will emerge.