Mechanism Design Theory - Explained
What is Mechanism Design Theory?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is Mechanism Design Theory?
Mechanism design theory refers to an approach in economics that tries to study how particular results or outcomes are achieved. Economists use this theory to compare, analyze, and regulate some instruments associated with a specific outcomes achievement.
How is the Mechanism Design Theory Used?
Mechanism design theory was popularized by Erick Maskin, Roger Myerson, and Leonid Hurwicz. In 2007, the three were awarded a Nobel Memorial Prize in Economic Sciences to recognize their mechanism design theory work. They were branded as the subjects founders. Their research has, to some extent, offered solutions to the knowledge gap that exists between sellers and buyers as well as the markets efficient operation consequences. According to the Nobel Committee, the theory helped to distinguish situations working in the market and those that dont. By using the approach, economists were able to identify regulation schemes, efficient trading mechanisms, and voting procedures. Despite the theory being highly abstract, its application in real-world situations is concrete. It has been able to justify the interventions of government as far as operational markets such as health care are concerned. It helps in constructing rules that prevent disparity in information between groups of sellers and buyers. The gap in knowledge is known as information asymmetry in economics, and it is currently the most studied discipline.
Mechanism Design Theory vs. Financial Markets
There has been the development of several mathematical theorems because of the many applications for mechanism design theory. The assumptions and applications make it easy for researchers to manage information and restrictions control of the involved entities so that they can come up with the desired results. An excellent example of a place where the mechanism design theory can be applied is in auction markets. The regulators primary aim in those markets is to produce an orderly and efficient market for participants. For them to achieve this, they involve several entities with different associations and information levels. They use mechanism design theory to control and regulate information that is available to participants so that they can achieve their desire to have an orderly market. To properly accomplish this, it requires monitoring of activity and information at different levels for market makers, exchanges, sellers, and buyers.
- Keynesian Perspective of Aggregate Demand
- Recessionary and Inflationary Gap
- Consumption Expenditure
- Investment Expenditure
- Government Spending in Aggregate Demand
- Net Exports in Aggregate Demand
- Keynesian Economic Analysis
- Wage and Price Stickiness
- Coordination Argument of Wage Stickiness
- What are Menu Costs
- Keynesian Assumptions in the Aggregate Demand and Aggregate Supply Model
- Macroeconomic Externality
- Expenditure Multiplier
- The Phillips Curve
- Keynesian Approach to Unemployment and Inflation
- Keynesian Perspective on Market Forces
- NeoClassical Economics
- Long Run Potential GDP
- Physical Capital Affects Productivity
- Potential GDP in the Aggregate Demand Aggregate Supply Model
- Prices are Flexible in the Long Run
- Keynesian and NeoClassical View of Long-Run Aggregate Supply and Demand
- Speed of Macroeconomic Adjustment of Wages and Prices
- Paradox of Rationality
- Rational Expectations Theory
- Shapley Value
- Mechanism Design Theory
- What is the Adaptive Expectations Theory
- Measure Inflation Expectations
- Neoclassical Phillips Curve Tradeoff
- Neoclassical View of Unemployment
- Neoclassical View of Recessions
- Keynesian vs Neoclassical Macroeconomic Policy Recommendations