The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Mechanism Design (New Developments)

  • Sandeep Baliga
  • Tomas Sjöström
Reference work entry


Mechanism design concerns the question: given some desirable outcome, can we design a game which produces it? This theory provides a foundation for many important fields, such as auction theory and contract theory. We survey the recent literature dealing with topics such as robustness of mechanisms, renegotiation and collusion. An important issue is whether simple and intuitively appealing mechanisms can be optimal. Finally, we discuss what can be learned from recent experiments.


Adverse selection Asymmetric information Auctions Centralization Cheap talk Collusion Commitment Consequentialism Credibility Decentralization Delegation Dominant strategy mechanisms Free riding Hold-up Incentive compatibility Incomplete contracts Information rent Limited liability Mechanism design Moral hazard Nash equilibrium Paretian liberal Pooling equilibrium Principal and agent Prospect theory Refinements of Nash equilibrium Renegotiation Repeated games Revelation mechanism Revelation principle Side contracts Side transfers Signalling Social choice functions Social choice rules Soft-budget constraint Surplus Truthful implementation 

JEL Classifications

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Sandeep Baliga
    • 1
  • Tomas Sjöström
    • 1
  1. 1.