Mechanism Design

Mechanism Design and Market Institutions

Mechanism Design concerns establishing institutional rules that maximize the designer’s objective under the constraint that the involved parties or individuals possess private information and may take private actions in their own interests. The objective of the mechanism designer can be to maximize social welfare, efficiency, or any kind of monopoly rent.

Because of its practical importance, mechanism design theory has been on the top research agenda for almost half of a century. The objective of this course is two-fold. Firstly, students will have a chance to sharpen their knowledge about the basic notions such as the revelation principle, incentive compatibility, and individual rationality constraints, as well as second-best solution as a fundamental result under incomplete information. Secondly, students will be exposed to several concentrated fields of mechanism design, namely, auctions with interdependent values, detail-free protocols to achieve allocation efficiency, matching theory and, eventually, market institutions beyond the traditional theory of mechanism design. After this course, students will be equipped with the up-to-date knowledge and a more profound understanding of how and why some standard market institutions prevail in practice, while being able to discern possible causes for market failures in other situations.