Economics Nobel 2007

Leonid Hurwicz, Eric Maskin, and Roger Myerson won the Nobel Prize “for having laid the foundations of mechanism design theory.”  Tyler Cowen thinks that their contributions are going out of style.  I see things differently.  This is another Nobel for the Hayek tradition of political economy (see here, here, here, here, and here for previous winners).  Their research has improved our understanding of the role of institutions- market and non-market- in addressing issues that arise in the presence of informational asymmetries.  What could be more Hayekian?  Hurwicz’s is clearly responding to the issues raised by Hayek’s 1945 paper, “The Use of Knowledge in Society” (see his 1969 American Economic Review Paper “On the Concept and Possibility of Informational Decentralization”).  His later work is well within the James Buchanan-Hayek study of political institutions in asking the age old question- but who will guard the guardians.  Myerson has continued in this tradition (see here). He has also examined the effects of bicameralism on political decision-making, an idea clearly addressed in Hayek’s Law, Liberty, and Legislation.  He has also analyzed the effects of democratic institutions more broadly (see here).  Maskin’s contributions include his analysis of the soft budget constraint, problems with majority rule, the sometimes perverse incentives that elections introduce, and has raised issues regarding the nebulous role of property rights in the property rights literature (is it really all about contracts?).  Overall, it looks like the Hayek research program is alive and well and continues to provide insight into the social order.