This time of the year is one of my favorites. The weather is generally pleasant, the leaves provide us a glimpse of nature’s unique pallet of colors, Thanksgiving is fast approaching, and there are still six weeks before the last-minute Christmas shopping rush. It is an all-around pleasant experience.
But there’s another reason why I especially like this time of year. It is one of those rare times when the subject of economics receives worldwide attention for something other than dry statistics or political rhetoric due to the announcement of the Nobel Prize recipients. Although Al Gore and the United Nations’ Intergovernmental Panel on Climate Change have garnered the lion’s share of media attention for winning the Peace Prize, ten other individuals have also been recognized for their nonpareil efforts—three in economics, three in medicine, two in physics, one in chemistry, and one in literature.
Since 1901, the Nobel Prize has been awarded in the fields of physics, chemistry, medicine, literature, and for work in peace. However, no award was given in economic sciences until 1969. In that year, the Sveriges Riksbank (Bank of Sweden) established an award in memory of Alfred Nobel, whose estate had originally provided for the earlier awards. The Norwegian bank’s award is now commonly known as the Nobel Memorial Prize in Economics and is awarded along with the others (the Peace Prize is given in a separate ceremony).
On December 10, the economics prize will be presented in Stockholm, Sweden to US citizens Leonid Hurwicz, Eric S. Maskin, and Roger B. Myerson “for having laid the foundations of mechanism design theory.” The 90-year-old Hurwicz, who was born in Moscow, is the Regents Professor Emeritus of Economics at the University of Minnesota. He is credited with initiating the mechanism design theory in 1960. His fellow recipients, Eric S. Maskin (the Albert O. Hirschman Professor of Social Science, Institute for Advanced Study, Princeton University) and Roger B. Myerson (the Glen A. Lloyd Distinguished Service Professor at the University of Chicago) further developed it.
Their initial studies dealt with how game theory could help determine the most efficient procedures for allocating resources based on available information and the incentives of those individuals or groups involved. Their work basically involved investigating how information is used in society to allocate resources. Prior to the efforts of these men in mechanism design theory, the search for answers related to decision-making procedures was much less coherent and incomplete. In many respects, it built on the work of John Nash (of “A Beautiful Mind” fame) and helped bring it into all sorts of arenas to make our lives better.
This theory has enabled economists, governments, and businesses to better distinguish situations where markets work well from instances when they do not. In general, their theory describes motivations for individuals involved in markets to work together to allocate resources. A major emphasis of their work is planning and helps explain why some approaches work better than others.
The theory has changed the kinds of tools and language used by economists to analyze particular matters. It has also enabled economists to identify efficient trading mechanisms and regulation schemes as well as procedures related to voting. It has yielded better capacity to provide the institutional framework for markets to work better and the political and legal systems necessary to supplement markets when they don’t work in the traditional way. As the world economy becomes ever more competitive and integrated, evolving such structures becomes increasingly critical.
The contributions of all 797 men, women, and organizations receiving the Nobel prizes over the past 106 years have had and continue to have significant impact on individual lives and society in general. While the efforts of Hurwicz, Maskin, and Myerson may not be as visible or as easy to understand as the work of some other recipients, their theory has had a profound influence in myriad areas of economics, as well as political science, law, and everyday life. They are most worthy of joining this exalted pantheon.