The Nobel Memorial Prize in Economic Science was awarded to three American economists today for creating and developing a sophisticated explanation of the interaction among individuals, markets and institutions.
Their work, called mechanism design theory, has influenced thinking on a wide range of problems in economics and political science, from the design of government bond auctions to patent systems to voting procedures.
Leonid Hurwicz, 90, a professor emeritus at the University of Minnesota, initiated the field of mechanism design theory, the Royal Swedish Academy of Sciences said in the award citation. His work was further developed by two 56-year-old economists who are sharing the prize — Roger B. Myerson, a professor at the University of Chicago, and Eric S. Maskin, a professor at the Institute for Advanced Study in Princeton, N.J.
Mr. Hurwicz, who was born in Moscow, started his work in the postwar years at a time when economists and others were heatedly debating whether socialist reforms were possible without a loss of economic efficiency. Those debates tended to be deeply ideological.
Mr. Hurwicz was a pioneer in trying a more rigorous, mathematical analysis to those kinds of issues. Last year, in a lecture last year to honor Mr. Hurwicz, Mr. Myerson explained, “Over many years and decades, Leo Hurwicz has worked to show how mathematical economic models can provide a general framework for analyzing different economics institutions, like those of capitalism and socialism, as mechanisms for coordinating the individuals of society.”
The field of mechanism design theory strives to take into account the realities of economic life systematically. Adam Smith’s “invisible hand” is a powerful metaphor that describes how the market, in theory, will always efficiently allocate scarce resources. Yet real-world conditions tend to complicate things. Competition is not completely free, consumers are not perfectly informed, optimizing private production and consumption may have social costs, and institutions can strongly shape economic bargaining.
The work begun by Mr. Hurwicz, and advanced by Mr. Maskin and Mr. Myerson, gave economists and policy makers new intellectual tools to address questions like those listed in the academy’s citation: “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?”
The institutional focus of this year’s laureates, economists say, is an important contribution. “Economists’ most lasting influence comes from the design of institutions,” said Robert J. Shiller, a professor of economics at Yale University. “It is these mechanisms we use day to day that really matter to our lives.”
The three economists will share the prize money, 10 million Swedish kronor, or about $1.56 million. The Nobel Memorial Prize in Economic Science was not one of the five original prizes — physics, chemistry, medicine, literature and peace — that Alfred Nobel specified in his will, and were first awarded in 1901. The first economics prize was awarded in 1969.
By STEVE LOHR
Published: October 15, 2007
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