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Rules of the game

Reforming governments should take note of the theory of "mechanism design"—work on which recently won three economists the Nobel

By Ken Binmore   November 2007

In mid-October, the Nobel prize for economics was awarded to Leo Hurwicz, Eric Maskin and Roger Myerson for their work on mechanism design. Newspaper economics correspondents made what they could of this news, but obviously had only the vaguest idea of what mechanism design is.

Mechanism design is too important to get this kind of treatment. The philosophy behind the theory represents a genuine “third way” that ought to inform the reforming efforts of any government of whatever stripe.

The basic idea of mechanism design is simple. It is obvious that in any organisation, decisions should be made by whoever…

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