mechanism design

Roger B. Myerson
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

A mechanism is a specification of how economic decisions are determined as a function of the information that is known by the individuals in the economy. Mechanism theory shows that incentive constraints should be considered coequally with resource constraints in the formulation of the economic problem. Where individuals’ private information and actions are difficult to monitor, the need to give people an incentive to share information and exert efforts may impose constraints on economic systems just as much as the limited availability of raw materials. Mechanism design is the fundamental mathematical methodology for analysing economic efficiency subject to incentive constraints.
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How to cite this article

Myerson, Roger B. "mechanism design." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 02 September 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_M000132> doi:10.1057/9780230226203.1078

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