Nobel for 'mechanism design' pioneers

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The Independent Online

The Nobel prize for economics has been awarded to three American academics, Leonid Hurwicz, Eric Maskin and Roger Myerson, for their work on mechanism design theory.

Despite the abstruse sounding name, this branch of thesocial sciences is concerned with how the design of a mechanism – say a voting system or anauction to purchase a government licence or the distribution arrangements for shares in a flotation or a central bank'sgilts auction – can best satisfy the desire of the "owner" of that mechanism.

Thus, for example, when the Government comes to sell the licences for 4G telephony, an economist using mechanism design theory could advise as to the best way of doing so. The economist would declare that a Treasury aim of maximising revenues might be best achieved by using sealed bids, or having an open auction, or by choosing lots, or some other mechanism, depending on the research. If correct, the economist could thereby save the taxpayer many billions of pounds that can be spent to the benefit of the citizen. Thus can the seemingly remote reaches of economic theorising have a real impact on people's welfare. It is an extension of the already well-established discipline of "games theory" , examining how players behave when they have imperfect knowledge of how other people might react to their actions.

The Royal Swedish Academy of Sciences said the winners' contribution played a central role in economics and political science. The committee said the theory they helped to develop "allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists to identify efficient trading mechanisms, regulation schemes and voting procedures".

Professor Myerson, 56, from the University of Chicago, has used the theory to compare how different electoral systems might function and developed an approach to auctions which could help to maximise the sellers' revenue.

Professor Maskin, 56, from the Institute of Advanced Study at Princeton, has looked at the legal regulation of economic activity.

Professor Hurwicz, born in 1917 in Russia, is a pioneer of game theory.

The winners will share a prize of 10m Swedish krona.

The prize has been awarded by the Swedish central bank since 1969, and is not officially part of the legacy of Alfred Nobel. It is properly known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It has been won by 61 individuals including Paul Samuelson, Milton Friedman and Amartya Sen.