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A Theory of Note
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This year’s Nobel Prize in Economics was awarded to three Americans—Leonid Hurwicz, Eric S. Maskin, and Roger B. Myerson—for their development of mechanism design theory, which serves in part to explain how people decide to spend their money, or how institutions decide how to allocate their resources.

That is, of course, an extreme simplification, but it hints at why the theory is relevant to the pulp and paper industry in areas ranging from contract negotiations to marketing.

In explaining the theory, Myerson writes that it can “help us to appreciate the importance of mediation in economic relations and transactions.” The Royal Swedish Academy of Sciences notes that “An important insight [of the theory] is that consensual decision-making is frequently incompatible with economic efficiency. The theory thus helps to justify governmental financing of public goods through taxation.”

Various experiments, as reviewed by Chen and Ledyard, have provided further insights into the theory’s applicability to real life, as well as limitations.

The following links will provide a starting point for better understanding the theory and discovering potential applications:

Mechanism Design Theory — scientific background compiled by the Prize Committee of the Royal Swedish Academy of Sciences:
http://nobelprize.org/nobel_prizes/economics/laureates/2007/ecoadv07.pdf

The Prize in Economic Sciences 2007, by the Royal Swedish Academy of Sciences:
http://nobelprize.org/nobel_prizes/economics/laureates/2007/info.pdf

Mechanism Design, by Roger B. Myerson:
http://home.uchicago.edu/~rmyerson/research/mechdes.pdf

Mechanism Design Experiments, by Yan Chen and John O. Ledyard:
http://www.hss.caltech.edu/personal/jledyard/Documents/jl63%20copy.pdf

 


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