The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2007
Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson
"Oh, gosh yes. I mean this is a vast subject which has only begun to be exploited"
Telephone interview with Eric S. Maskin immediately following the announcement of the 2007 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 15 October 2007. The interviewer is Adam Smith, Editor-in-Chief of Nobelprize.org.
[Eric Maskin] – Hello.
[Adam Smith] – Oh, hello, may I speak to Professor Maskin please?
[EM] – Speaking.
[AS] – This is Adam Smith, from the Nobel Foundation's website in Stockholm.
[EM] – Hi.
[AS] – Hi, congratulations of course on the news.
[EM] – Thank you.
[AS] – And we have a tradition of recording extremely brief telephone interviews with new Laureates, for our archives, and I wondered if you'd mind just speaking for a couple of minutes.
[EM] – That's fine.
[AS] – Thank you. Well, you've been awarded the Prize, together with Leonid Hurwicz and Roger Myerson, for laying the foundations of mechanism design theory.
[EM] – Uh-huh.
[AS] – Now, as I understand it that's a way of studying the design of institutions implementing collective decision-making.
[EM] – That's right.
[AS] – Can you give us some examples of where it has been most effectively applied?
[EM] – Well, probably the most dramatic example in recent years was the various auctions that have been used for decentralization. In various countries around the world, assets that had previously been in the hands of governments were sold off to the private sector in the hope that this would lead to a more efficient allocation, that these assets would be put to better use. And the way that they were sold off was via auctions, in the hope that the auction mechanism would help promote a better application. So auctions are a particular example of a mechanism that has been used very effectively.
[AS] – And these are serious auctions, where social good matters. It's not like an Ebay auction where it doesn't really matter too much?
[EM] – Right, right. I mean to take an example in my country, the FCC, the Federal Communications Commission, had some auctions designed for selling off radio spectrum. And these auction sales made possible the telecommunications revolution in the US. So now cell phones and Blackberrys, and the like, are all using radio waves that had previously been in purely public hands.
[AS] – Goodness. So it really enabled a technological revolution. That connection between economic theory and, sort of, everyday use probably isn't seen by many people.
[EM] – That's right.
[AS] – And the list of places where mechanism design theory has been applied just goes on and on, doesn't it. It extends into social systems, social policy.
[EM] – Yes. Well for that matter you can think of a tax system as a mechanism. Indeed James Mirrlees, who was a Laureate from about 10 years ago, did his work on the design of optimal income taxes. Again, there you have particular social goals, you are interested in using taxes to improve the income distribution, to help those at the lower end. But you don't want to choke off the incentives of individuals to earn income, that is you don't want to stifle initiative. And so a properly designed tax system can strike a balance between helping the poor and, at the same time, giving people the incentive to work.
[AS] – Right, so your work, and the work of your fellow Laureates, is a further step on the road to designing institutions that align individual incentives with overall social goals?
[EM] – That's right. That's what we try to do.
[AS] – Are there further roads to go down? Do you think that there's ...
[EM] – Oh, gosh, yes. I mean this is a vast subject which has only begun to be explored. Leo Hurwicz, the founder of the subject, started work on this, well, close to 50 years ago. And it remains a field which is extremely active. Mechanism design is one of the most active areas in economic theory still, and should continue to be.
[AS] – And I imagine it's a special delight to you to be awarded the Prize together with Leonid Hurwicz?
[EM] – Yes, well, Leo and Roger both. They're both friends, and collaborators for that matter. I've written papers with both of them. But Leo is the father of the field, and I can acknowledge now that for many years I put his name forward, I nominated him, for this Prize. I'd begun to worry that it was too late. He's 90 years old.
[AS] – Yes, indeed.
[EM] – So, I was enormously relieved when the news came this morning that he'd won and yes, it's a tremendous thrill to be able to share it with him, and with Roger.
[AS] – How nice. In fact we just spoke to him and I pointed out that he was the oldest ever Laureate, at 90 years old ...
[EM] – Is that right? In all fields?
[AS] – In all fields, in all time.
[EM] – That's remarkable. Well, I'm awfully glad that it wasn't too late.
[AS] – His wife's comment to him, which we overheard on the telephone, was “Well, are you pleased to have lived that long?”
[EM] – [Laughs]. There was a very nice celebration, which actually Roger and I both attended in Minneapolis, last Spring, in honour of the 90th birthday. And I'm happy to say that, although Leo has been in somewhat fragile health in recent years, his mind was as sharp as ever. And although he found it somewhat difficult to speak, on those occasions, when he said a few words his rather devilish sense of humour was still intact.
[AS] – Good. Well hopefully they'll be another celebration come December when all three of you gather in Stockholm. And at that point we conduct rather longer interviews with Laureates, so I'll look forward to speaking again then.
[EM] – I'll look forward to that too.
[AS] – OK, thank you, and once again, my congratulations.
[EM] – Many, many thanks. Bye, bye.
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