15 October 2007
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".
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.
Read more about this year's prize
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Leonid Hurwicz, US citizen. Born 1917 in Moscow, Russia. Regents Professor Emeritus of Economics at University of Minnesota, Minneapolis, MN, USA.
Eric S. Maskin, US citizen. Born 1950 in New York City, NY, USA. Ph.D. in applied mathematics 1976 from Harvard University, Cambridge, MA, USA. Albert O. Hirschman Professor of Social Science, Institute for Advanced Study, Princeton University, NJ, USA, since 2000.
Roger B. Myerson, US citizen. Born 1951 in Boston, MA, USA. Ph.D. in applied mathematics 1976, from Harvard University, Cambridge, MA, USA. Glen A. Lloyd Distinguished Service Professor at University of Chicago, IL, USA, since 2007.
The Prize amount: SEK 10 million, will be shared equally among the Laureates.
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The Royal Swedish Academy of Sciences, founded in 1739, is an independent organisation whose overall objective is to promote the sciences and strengthen their influence in society. Traditionally, the Academy takes special responsibility for the natural sciences and mathematics.