On the afternoon of September 30, at the invitation of business school of Nanjing Normal University, Pr.Eric S. Maskin, a Nobel laureate in economics, gave an academic lecture on “Mechanism Design Theory” at the Jingwen Library.
Born in New York in 1950, Prof. Maskin published his far-reaching essay named “Nash equilibrium and welfare optimization” and became the most respected master who took office at Massachusetts Institute of Technology (MIT) at a young age of 31. Equipped with rigorous scholarship, he has contributed greatly to cultivating talents in economic field, including famous Chinese economists Chenggang Xu and Daokui Li.
The theme of the lecture is “Mechanism Design Theory”—Maskin’s excellent research results that helped him win the 2007 Nobel Prize in Economics. Opposite to 90% theories which devote themselves to predict outcomes, mechanism design starts with outcomes themselves and traces from goals backward to the institution to achieve those goals. The study mainly focuses on ways in which people design a program or system (i.e. mechanism) to achieve a goal when they are given certain economic or social goals. In the speech, Prof. Maskin introduced Mechanism Design through three simple examples, including how to distribute equitably, how to assign a spectrum license, and how to choose a public energy source.
He first shared the case of communities to divide agricultural lands between two farmers A and B, and noted that a fair solution must be raised to satisfy both sides. Faced with lack of information, a sensible community leader should let farmer A divide the land and then have farmer B choose one of the portions. In this case, farmer A would make sure the lands he divides are equally good, so whichever farmer B takes, A will be happy with other. And farmer B is satisfied because he can take the better one if he regards portions as unequally good. The simple example vividly illustrates key features of mechanism design: 1) mechanism designer (community) itself doesn’t know in advance what outcomes are optimal; 2) it have participants themselves generate information needed to identify optimal outcome. As a result, the mechanism must be incentive compatible to reconcile both community and individual goals.
The second example supposed that a city wanted to choose among several telecommunication enterprises in order to provide the best mobile telephone service to its citizens, but officers didn’t know how much each enterprise valued the opportunity. Instead of asking them directly, mechanism suggests every enterprise makes bid, and the winner is high bidder who have to pay only the second-highest bid. Under such a circumstance, no enterprise would understate at the risk of losing the opportunity nor exaggerate the bidding in case they would overpay.
To further convince the audience that mechanism design is a useful tool for achieving cooperative outcomes, he also introduced its potential application in drawing up international treaty on greenhouse solar emissions and policies to prevent financial crisis. Explaining the methods with great patience, Prof. Maskin helped the audience acquire a deeper understanding of his theories. Except for three simple but inspiring examples, he also confirmed mechanism design’s general use.“You might ask is there a general way of determining whether a goal can be implemented and whether is the determined way of finding mechanism that implements the goal. It turns out that incidents of those functions are yes. There is a procedure that we can go through to find mechanism.” He said.
In the post-discussion Q&A session, Prof. Maskin was peppered with questions from students present. Talking about the inequality brought by globalization, he suggested two solutions. One way is through education and skill-training, enabling people in rural areas to elevate their incomes. Another is through the tax system. Rich people who make a fortune out of social opportunities should be willing to help less fortunate people by paying extra tax back to the society.
In response to the question “What are the inner factors that devote to China’s recent growth?” Prof. Maskin attributed the phenomenon to a combination of two facts. First, Deng Xiaoping freed up China’s economic system through the great reform and opening up policy in the late 1970s and early 80s, which allowed entrepreneurs for the first time to pursue their business opportunities. And the other factor is the spirit of Chinese people. According to him, entrepreneurial Chinese culture endowed people with abundant creative ideas and once they were given the opportunity to pursue those ideas, they could be successful. So it’s a combination of politically wise choices under Deng Xiaoping and also a culture which can take advantage of those political choices. A round of applause greeted the remark.