Trae Me and eBay customers can breath easy – the Nobel prize wining trio of Hurwicz, Maskin and Myerson are fans of auctions as the most efficient way to clear a market when information is not freely available to all. (Actually – their work helps to understand which auction mechanism is best in which situation.)
The theory shows auctions are typically the most efficient way to sell private goods to a given set of potential buyers (WSJ)
We all knew that of course, which is why Trade Me is so big, but it’s nice that some folk got a Nobel for the Mechanism design that that explains it all.
here’s the more prize press release and explanation of their work:
Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals’ incentives and private information. The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures. Today, mechanism design theory plays a central role in many areas of economics and parts of political science.
and for the real background, read the, err, Scientific Background.
Lance Wiggs 