Mechanism design theory was established to try to address the main challenge posed by Ludwig von Mises and F.A. Hayek. It all starts with Mr. Hurwicz's response to Hayek's famous paper, "The Use of Knowledge in Society." In the 1930s and '40s, Hayek was embroiled in the "socialist calculation debate." (...)
Hayek's argument, a refinement of Mises, basically stated that the economic problem society faced was not how to allocate given resources, but rather how to mobilize and utilize the knowledge dispersed throughout the economy.
Hayek argued that mathematical modeling, which relied on a set of given assumptions, had obscured the fundamental problem. These questions were not being probed since they were assumed away in the mathematical models of market socialism presented by Oskar Lange and, later, Abba Lerner. Milton Friedman, when he reviewed Lerner's "Economics of Control," stated that it was as if economic analysis of policy was being conducted in a vacuum. Lange actually argued that questions of bureaucratic incentives did not belong in economics and were best left to other disciplines such as psychology and sociology.
Leonid Hurwicz, in his classic papers "On the Concept and Possibility of Informational Decentralization" (1969), "On Informationally Decentralized Systems" (1972), and "The Design of Mechanisms for Resource Allocation" (1973), embraced Hayek's challenge. He developed mechanism-design theory to test the logic of the Mises-Hayek contention that socialism could not possibly mobilize the dispersed knowledge in society in a way that would permit rational economic calculation for the alternative uses of scarce resources. Mises and Hayek argued that replacing the invisible hand of the market with the guided one of government would not work. Mr. Hurwicz wanted to see if they were right, and under what conditions one could say they were wrong.
Sul suo blog, Pete torna sul tema come storico del pensiero economico, e sottolinea come anche questo Premio Nobel confermi un fatto caro agli economisti 'austriaci', ovvero l'influenza di Hayek sul pensiero economico e politico del secondo Novecento:
Hayek has received more citations from Nobel Prize winners as either (a) the reason they did research along the path that was recognized, or (b) that in the later years they have come to appreciate his questions and analysis more than any other economist, than any other Nobel Prize winner. His work has proved fundamental to not only Buchanan, Coase, North, and Smith, but also Lucas, Phelps, and Stiglitz. Add Hurwicz to that list, and don't forget Koopmans from 1975.