The economics Nobel and mechanism design

19Oct07

The economist has an article on the subject of the Nobel-winning research of Leonid Hurwicz, Eric Maskin and Roger Myerson.

As it happens, I just took a final exam on this very subject. And while I’m not convinced that I aced the exam (but I do suspect that I passed), I am convinced that it is one of the coolest topics in microeconomic theory (at least, of the topics to which I’ve been exposed). It’s worth looking into if you’re unfamiliar with the subject. Mechanism design is one of the areas where it seems that economics has clear, direct applications to public policy. And the ideas of such designers have, in fact, been implemented — in setting up auctions for parts of the radio band, in creating systems by which parents apply to get their students into public schools, and more.

Steve Levitt himself even has a paper on Jail/Prison being a form of incentive compatibility that encourages people to pay fines when they are levied by the justice system in response to the commission of a crime. As it happens, I just read the paper and presented it to my contract theory class, and everyone seemed to think that it was an entertaining (relative to most other papers in economic theory) topic.

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