The Nobel Prize in Economics for 2007 was awarded to Leonid Hurwicz, Eric Maskin, and Roger Myerson of the United States of America for their leading work on making markets work with more efficiency. They were awarded the prize for their work on Mechanism Design Theory, a branch of economics that looks at ways to make imperfect markets work efficiently. The markets may be either social or economic exchanges. The theory was initiated by Hurwicz in 1960, was later pursued by Maskin and Myerson in the late 1970s, and has helped economists identify efficient trading mechanisms, regulation schemes, and voting procedures. The theory helps identify mechanisms that realize the largest benefit from trade, maximize a seller’s expected gain, or provides an insurance scheme that gives the best coverage without inviting misuse. According to the classical theory of economics there exists an ideal world where markets work hundred percent efficiently to bring buyers and sellers together as they exchange rare resources. But, in the practical world, however, such markets rarely exist because the consumers may not be fully informed about their choices and there may also be social costs beyond price, pollution for example, that is to be taken into consideration. Similarly, the transactions within a company or between organizations may upset the workings of an idealized market place. The economists of the Mechanism Design Theory aim at making these imperfect markets as efficient as possible, calculating, and valuating very complex models in the process. A typical test would be to see whether social welfare provisions go to the most needy or to assess how government regulations affect specific sectors. The aim of this theory is to distinguish the conditions where the markets work efficiently from the conditions where they would not .
Leonid Hurwicz is the Regent’s Professor of Economics Emeritus at the University of Minnesota and won the US National Medal of Science in Behavioral and Social Science for his outstanding work in mechanism design. Eric Maskin is professor of Social Science in Princeton University and Roger Myerson is professor of Economics at the University of Chicago.
The Nobel Prize for Economics was not mentioned by Nobel in his will. It was created by Swedish Central Bank to mark its tercentenary in 1968. It was awarded first in 1969 and is also funded by the bank. The prize includes a gold medal, a diploma and 10 million Swedish kronor (1.53 million US dollars) to be shared between them.