Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
Apr 24 20098:04am EDT -
Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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Mechanism Design Theory for Dummies
This Nobel prize is exactly the sort of thing that journalists have nightmares about. They wake up early, and read a citation from the Royal Swedish Academy of Sciences giving the Economics prize to three economists they've never heard of, for helping to develop an entire discipline – mechanism design theory – that they've also never heard of. And so if I were you I'd leave the MSM alone and head straight over to Marginal Revolution, where Tyler and Alex are doing a great job of bringing us all up to speed. Start here, and then read more on Eric Maskin, Roger Myerson, and Leonid Hurwicz. Or alternatively, you can try my own 98-word explanation of what mechanism design theory is:
A mechanism is a framework, basically, within which one finds a market. Some markets don't need a mechanism to work well, but others do. For instance, let's say that you have a monopoly, and a regulator. The regulator sets up a framework so that the monopoly doesn't overcharge. Or let's say you want to sell a very illiquid asset like a rare and unique painting. An auction house will set up a framework so that your painting can be monetized in a transparent manner. Mechanism design theory is the science of structuring such frameworks in an optimal manner.
