“Tyler Cowen”:http://www.marginalrevolution.com/marginalrevolution/2007/10/leonid-hurwic-1.html on the Nobel prize going to the mechanism design crowd.

In other words, no incentive scheme, no matter how clever, can get people to tell the truth. Grove, Clarke, Tideman, and Tullock lurk in the hallways. Note that a second price auction (let everyone bid and the winner pays the price of the next highest bid) fails in terms of Paretian optimality. The government takes the second price bid from the winner, but what should it do with the money? Either the government wastes resources by destroying wealth, or it redistributes that wealth in some way but then the resulting redistribution in turn feeds back into bids and we can no longer derive truth-telling as optimal (but is this really a practical problem?; my fear is that the entire incentive-compatibility literature has never gotten at the real reason why we don’t run the entire economy as a second-price auction.)

One of my favourite papers of all time, Gary Miller and Thomas Hammond’s “Why Politics is More Fundamental Than Economics: Incentive Compatible Mechanisms are Not Credible,” “makes exactly this argument”:http://jtp.sagepub.com/cgi/content/abstract/6/1/5 (link to abstract: full paper is behind paywall for non-academics, unfortunately) using clear language and simple mathematics. It also makes clear (a) that the problem doesn’t vanish if the surplus goes to a private actor rather than government, hence suggesting that many private sector schemes to elicit information etc are similarly problematic, (b) that one plausible historical solution has been to elicit the creation of bureaucratic norms of professionalism that encourage administrators not to behave as selfish rational actors and (c ) that the surplus problem is, properly considered, where politics enters into the argument, and a way of getting at the real reasons why we don’t run the economy using these mechanisms.

Also notable is another paper that “Tyler links to”:http://www.marginalrevolution.com/marginalrevolution/2007/10/was-the-indian-.html on whether the Indian caste system was efficient or not. As Tyler notes politely, and Chris Hayes “more pungently”:http://www.chrishayes.org/blog/2007/oct/14/mainstream-economics/, this is a weirdly functionalist paper in the way that many economic analyses of institutions are weirdly functionalist. The professional deformity of the institutional economist is to seek explanations of institutional origins and change grounded in efficiency. In fairness, I should acknowledge that the professional deformation of the political scientist (and of many economic sociologists) is to seek explanations of institutions grounded in power and distributional questions, but it seems to me that this professional deformity gets things right _a lot more often_ (institutions that are genuinely grounded in the desire to promote collective efficiency are relatively rare, and the Indian caste system is rather obviously not one of these rare exceptions).

Update: see further “Jim Johnson”:http://politicstheoryphotography.blogspot.com/2007/10/2007-nobel-prize-economics-mechanism.html for a more detailed account of how mechanism design “unintentionally …establishes the fundamental importance of _politics_”. On distribution v. efficiency, see also this very interesting “new _AJS_ article”:http://www.indiana.edu/~tbsoc/AJS%20article.pdf (via “OrgTheory”:http://orgtheory.wordpress.com/2007/10/14/interests-and-the-creation-of-new-institutions/ ) which seeks to assess the merits of distributional and efficiency theories in explaining the origins of transnational private regulation. Finally, those looking for some (mathematically pretty hairy) intro materials on mechanism design theory should go to “Michael Greinecker”:http://yetanothersheep.blogspot.com/2007/10/readings-on-mechanism-design.html.

A couple of unrelated links that might have formed the basis of proper posts, had I but time. First, over at Leiter’s site, there’s a discussion of some highly critical remarks that Raymond Geuss has made about John Rawls and his work. Second, at Reason there’s an interview with Ayan Hirsi Ali in which she makes crystal clear the nature of her views and erases forever any thought that the perception of her as a “clash of civilizations” extremist might be the result of misreporting or looseness of expression (via Blood and Treasure).

Further evidence that blogging has eclipsed the Traditional Publishing Model.

Exhibit A. How to Talk About Books You Haven’t Read, by Pierre Bayard (2007). “A witty and useful piece of literary sociology” (LRB), “funny, smart, and so true” (Clare Messud), “evidently much in need” (NYT), “The runaway French bestseller … that readers everywhere will be talking about—and despite themselves, reading—this holiday season.”

Exhibit B. Books I Did Not Read This Year, by Kieran Healy (2003). “A blog post” (Me).