yowza^3

Nobel(pdf)

http://www.guardian.co.uk/business/2007/oc...

In its statement announcing the award, the Nobel committee said: "The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures."

While highly abstract and mathematical, mechanism design theory has concrete applications in the real world. It can provide important justifications for government intervention in the operation of markets such as health care, as well as helping to construct rules that attempt to avoid the disparity in information between groups of buyers and sellers.

http://www.businessweek.com/bwdaily/dnflas...

But mechanism design theory finds that free markets have their own problems with misaligned incentives. Myerson, the co-Nobelist from the University of Chicago, says the biggest incentive problem in free markets is "adverse selection," also known as the lemon problem. Health insurers, for example, suffer from this because the only people who sign up for high-cost policies are the ones who secretly know they have big health problems, for whom the cost of the coverage is worthwhile. Myerson, while acknowledging that he is not a health-care economist, said in an interview that the adverse selection problem gives "fundamental reasons why everybody or almost everybody might be better off with universal, compulsory health insurance."

http://en.wikipedia.org/wiki/Mechanism_des...