Monday, October 15, 2007

The Sveriges Riksbank Prize in Economic Sciences for 2007

The Royal Swedish Academy of Sciences has awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2007 to Leonid Hurwicz, University of Minnesota; Eric S. Maskin, Institute for Advanced Study, Princeton; and Roger B. Myerson, University of Chicago, for having initiated and developed "mechanism design theory," which (according to the Academy),
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.
(For more, read this.)

"Mechanism design theory" is, in fact, a tool for centralized planning. It assumes, among other things, that there is such a thing as a "social welfare function," when there is not. It assumes, also, that there are such things as "public goods," and that markets "fail" to provide such goods, when there are not such failures (or would not be in the absence of government intervention). (See, for example, #15 and #16 here.) The provision of defense as a public good, for example, arises not out of economic necessity but out of political prudence. (For more on that point, see this and this, and the posts linked therein.)

Recommended reading: a post by Justin Ptak at Mises Economics Blog, and an article by Alex Tabarrok at reasononline (the only flaw of which is a too-willing acceptance of the idea of "public goods").

Other related posts at Liberty Corner:
Socialist Calculation and the Turing Test
Second-Guessing, Paternalism, Parentalism, and Choice
Whose Incompetence Do You Trust?
Joe Stiglitz, Ig-Nobelist
Three Truths for Central Planners
Risk and Regulation
Back-Door Paternalism
Liberty, General Welfare, and the State
Science, Axioms, and Economics
Mathematical Economics
Economics: The Dismal (Non) Science
Positive Rights and Cosmic Justice: Part IV