The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Mechanism Design

  • Roger B. Myerson
Reference work entry


A mechanism is a specification of how economic decisions are determined as a function of the information that is known by the individuals in the economy. Mechanism theory shows that incentive constraints should be considered coequally with resource constraints in the formulation of the economic problem. Where individuals’ private information and actions are difficult to monitor, the need to give people an incentive to share information and exert efforts may impose constraints on economic systems just as much as the limited availability of raw materials. Mechanism design is the fundamental mathematical methodology for analysing economic efficiency subject to incentive constraints.


Adverse selection Bayesian collective-choice problems Bayesian equilibrium Bilateral bargaining Coase theorem Cooperative game theory Correlated equilibrium Direct-revelation mechanisms First-price auctions Incentive constraints Incentive efficiency Incentive-compatible mechanisms Incomplete information Inscrutability principle Mechanism design Pareto efficiency Private information Revelation principle Revenue equivalence theorems Sealed-bid auctions 

JEL Classification

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Roger B. Myerson
    • 1
  1. 1.