This book presents an approach to the design of decentralized, informationally efficient economic mechanisms. We provide a systematic process by which a designer of mechanisms, who is presented with a class of possible situations by a client (perhaps a private agent, or a government) and with the client's aims and objectives, can produce informationally efficient decentralized mechanisms that achieve the client's aims in that class of situations.

HISTORY

Formal treatment of economic mechanisms and mechanism design began with Hurwicz's paper (1960). The background against which that paper was set included a debate on the comparative merits of alternative economic systems. The main participants in that debate included Lange (1938) and Lerner (1937, 1944) on one side, and von Mises (1920, 1935) and Hayek (1935, 1945) on the other. Hurwicz's paper provided for the first time a formal framework in which significant issues in that debate could be addressed. In a subsequent paper, Hurwicz (1972) treated the formal theory of mechanisms again. The problem is to select a mechanism from a set of alternative possible mechanisms. A mechanism is viewed as a value of a variable whose domain of variation is a set of possible mechanisms. Informational tasks entailed by the mechanism imply costs in real resources used to operate the mechanism (as distinct from the resources used in economic production and other real economic activities). Desiderata by which the performance of a mechanism is evaluated also come into play.