Americans Leonid Hurwicz, Eric Maskin, and Roger Myerson have been awarded the Nobel Prize in Economics for their work that helped explain situations in which the market functions well and where it does not.
They laid the groundwork for understanding the optimal allocation of market mechanisms that assist economists, governments, and the business community in distinguishing between situations of effective market mechanisms and ineffective ones. Adam Smith’s classic metaphor of the «invisible hand» of the market does not work in practice under imperfect market conditions; competition is not entirely free, consumers do not have perfect information, and many transactions do not occur in the open market but rather within individuals or interest groups.
How do these processes unfold, and how is a specific goal such as private profit or social welfare achieved? Is government regulation necessary, and if so, when and what kind? These questions are all the more challenging because information about individual preferences and available technologies is dispersed among many participants who can use it for their private interests. This year’s laureates have created a mechanism that helps understand the optimal allocation of this information, and today their theory occupies a central role in many areas of economic and political science. (R)
