Economic Theories on Mechanism Design - Dictionary of Arguments

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Mechanism design: Mechanism design is a field of economics and game theory that studies how to design rules and incentives to achieve desired outcomes in strategic settings, where players act rationally. See also Rationality, Game theory, Artificial Intelligence, Incentives. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments.

> Economic Theories	> Mechanism Design	Economic Theories on Mechanism Design - Dictionary of Arguments Parisi I 490 Mecanism design/economic theories/Güth: (…) there is a long tradition of using auctions (see Milgrom, 1989)⁽¹⁾, partly very delicate applications like auctions to “trade” slaves. For the German-speaking areas, (…) Gandenberger (1961)⁽²⁾ who documents an impressive constancy in relying on the lowest bid price procurement auction. Whether as procurement auctions by which a buyer wants to contract with one of the potential suppliers or as sales auctions where a seller wants to find a buyer, the literature now offers a lot of auction theory (Wilson, 1985)⁽³⁾, auction experiments (e.g. Kagel, 2016)⁽⁴⁾, and related field studies (Milgrom, 1989⁽¹⁾). The voluntary supply of public projects, most typically in the form of pure public goods (see, e.g., Ledyard, 1995) or common pool resources (Ostrom, Walker, and Gardner, 1992)(5), also has a long tradition of applications. Rather than as a problem of mechanism design, it is usually studied by social dilemma games where community members nevertheless manage to cooperate to some extent, for example, due to repeated interaction, or some other aspects of their social life like monitoring and punishing (those who “free-ride”). Especially, the group in Bloomington has done an immense amount of field research and has also run experiments to study voluntary provision of public projects (see Ostrom, 2015)⁽⁶⁾. Mechanism design, however, has a more recent, already very successful history (the Nobel laureates in 2007, L. Hurwicz, E. S. Mascin, and R. B. Myerson, were awarded for their achievements in the theory Parisi I 491 of mechanism design). Hurwicz (1960⁽⁷⁾, 1973⁽⁸⁾) introduced the notion of incentive compatible mechanisms which in the form of dominance solvability were applied by Groves and Ledyard (1977)⁽⁹⁾ to voluntary public good provision. The Revelation Principle had been propagated by Myerson (1979,⁽¹⁰⁾ 1981⁽¹¹⁾, 1982⁽¹²⁾); Baron and Myerson (1982)⁽¹³⁾; Maskin (1999)⁽¹⁴⁾; Dasgupta, Hammond, and Mascin (1979)⁽¹⁵⁾; Meyerson and Sattertwaithe (1983)⁽¹⁶⁾; and Wilson (1985)⁽³⁾, where we exclude the exercises for “large economies” (e.g. Bierbrauer and Hellwig, 2011)⁽¹⁷⁾. The Revelation Principle is now a standard tool of mechanism design theory (see the more recent contributions like Bergemann and Morris, 2005⁽¹⁸⁾ and Jehiel and Moldovanu, 2001⁽¹⁹⁾). >Decision-making processes, >Auctions, >Cooperation. 1. Milgrom, P. (1989). “Auctions and Bidding: A Primer.” Journal of Economic Perspectives 3(3): 3–22. 2. Gandenberger, O. (1961). Die Ausschreibung. Heidelberg: Quelle and Meyer. 3. Wilson, R. (1985). “Incentive efficiency of double auctions.” Econometrica 53(5): 1101–1115. 4. Kagel, J. H. and Roth, A. E. (2016). The Handbook of Experimental Economics, Volume 2. Princeton, NJ: Princeton University Press. 5. Ostrom, E., J. Walker, and R. Gardner (1992). “Covenants with and without a Sword: Self-Governance is Possible.” American Political Science Review 86(2): 404–417. 6. Ostrom, E. (2015). Governing the Commons. Cambridge: Cambridge University Press. 7. Hurwicz, L. (1960). “Optimality and informational efficiency in resource allocation processes,” in K. J. Arrow, S. Karlin, and P. Suppes, eds., Mathematical Methods in Social Sciences, 27–46. Stanford, CA: Stanford University Press. 8. Hurwicz, L. (1973). “The design of mechanisms for resource allocation.” American Economic Review 63(2): 1–30. 9. Groves, T. and J. Ledyard (1977). “Optimal Allocation of Public Goods: A Solution to the ‘Free Rider’ Problem.” Econometrica 45(4): 783–809. 10. Myerson, R. B. (1979). “Incentive compatibility and the bargaining problem.” Econometrica 47(1): 61–73. 11. Myerson, R. B. (1981). “Optimal Auction Design.” Mathematics of Operations Research 6(1): 58–73. 12. Myerson, R. B. (1982). “Optimal coordination mechanisms in generalized principal–agent problems.” Journal of Mathematical Economics 10(1): 67–81. 13. Baron, D. P. and R. B. Myerson (1982). “Regulating a monopolist with unknown costs.” Econometrica: Journal of the Econometric Society 4: 911–930. 14. Maskin, E. S. (1999). “Nash equilibrium and welfare optimality.” Review of Economic Studies 66(1): 23–38. 15. Dasgupta, P. S., P. J. Hammond, and E. S. Mascin (1979). “The implementation of social choice rules: some general results on incentive compatibility.” Review of Economic Studies 46: 185–216. 16. Myerson, R. B. and M. A. Satterthwaite (1983). “Efficient mechanisms for bilateral trading.” Journal of Economic Theory 29(2): 265–281. 17. Bierbrauer, F. and M. Hellwig (2011). Mechanism Design and Voting for Public-Good Provision. Preprints of the Max Planck Institute for Research on Collective Goods Bonn 2011/31. 18. Bergemann, D. and S. Morris (2005). “Robust mechanism design.” Econometrica 73(6): 1771–1813. 19. Jehiel, P. and B. Moldovanu (2001). “Efficient design with interdependent valuations.” Econometrica 69(5): 1237–1259. Werner Güth. “Mechanism design and the law”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University. _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition.	Economic Theories Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017

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