The winners of the 2007 Nobel Prize in Economics are: Leonid Hurwicz, Eric S. Maskin, and Roger B. Myerson. The trio won the prize for their work on Mechanism Design. See the Nobel Prize press release as well as the Scientific Background paper detailing exactly what is mechanism design.
The Economist’s View website provides a number of links to newspaper articles and blog posts regarding the 2007 Economics Nobel prize. “Mechanism Design for Grandma” on the Marginal Revolution site gives a simple explanation of Mechanism Design Theory.
As an Applied Microeconomist who is generally skeptically of the practical importance of much of economic theory, I find Tyler Cowen’s post on the Marginal Revolution website particularly interesting:
No doubt mechanism design, and the general problem of inducing truth-telling, will be with us forever. But how practical are these general results? Or have the theorists simply provided us with cautionary notes and left the real applications to the context-specific world of practice? Did these guys get at the real reasons why we don’t organize the entire economy as a second-price auction?
Part of me thinks: “Hey, let’s say Natasha wants Yana to tell her the truth about when she will clean her room. This stuff isn’t useful!”
Another part of me thinks: “It is most important to get theory right. These guys are brilliant. Only the philistines demand that all scientific contributions have immediate applications.”
Some of you might argue: “These guys have already had a big impact on real world auctions and incentive schemes.” In terms of the induced improvement in human welfare, I find that a difficult case to make. The important progress has come from recognizing much simpler truths about incentives.