John Irons, EPI's research and policy director, explains it all:
...I realized that the way to understand the importance of this year's economics Nobel was to take a look at how we debate the usefulness of markets.A key insight of mechanism design theory is that real-world economic transactions differ from an abstract "market" where a price falls from heaven and trade happens. When engaging in trade in the real world, economic actors (buyers and sellers), must abide by certain rules and/or norms (e.g. Is it ok to negotiate? Can you make more than one counter offer?). Mechanism design shows that the economic outcomes, including market efficiency, can be dependent upon those rules. [...]The Nobel prize in economics was awarded not so much for the particular insights noted above, but rather for working out all the implications for economic thinking in various situations -- for example, deriving conditions under which there are efficient equilibriums (an exercise only an economist would love). More generally however, the insights from the theory help to explain how we can better design markets and public policy to reach an outcome that works for more people.
Read the rest (and comment) here. --The Editors
