- Person
- Leonid Hurwicz
- Lived
- 1917–2008
- Field
- Economics
- From
- Polish-American
The story
Leonid Hurwicz was born in Moscow in 1917 to a family of Polish Jews who returned to Warsaw in 1919 to escape the Bolsheviks. As a student at Warsaw University he joined Jewish students who stood for a year in protest against segregated seating. In 1939 he was in Switzerland when Germany invaded Poland; his parents and brother were sent to a Soviet labour camp, and he made his way through Spain and Portugal to the United States in 1940. He never took a degree in economics, learning it, he said, by listening.
Traditional economics asked when an idealised competitive market would allocate resources efficiently. Hurwicz, working first at the Cowles Commission and then for decades at the University of Minnesota, asked something more general: of all possible rules a society might use, which give the best results when the information needed is spread among many people who may use it to their own advantage? In a 1960 paper he defined a mechanism as a set of rules in which participants send messages, such as bids or reports, and a rule turns them into an outcome. In 1972 he introduced incentive compatibility, the requirement that following the rules honestly must be in each participant’s own interest. As he put it, when you write the rules of the game you must take into account that the players will try to cheat.
Eric Maskin and Roger Myerson developed these ideas into a full theory, and the three shared the 2007 Nobel Memorial Prize in Economic Sciences. The Nobel committee said mechanism design explains why auctions are often the most efficient way to allocate goods, why markets often fail to provide public goods, and how to design regulation, taxation and voting systems.
Later economists built on this foundation to design the auctions governments use to sell radio spectrum, school-assignment systems and kidney exchange programmes. Hurwicz liked to illustrate it with pollution: instead of simply ordering emissions cuts, a regulator can create tradable permits that reward firms for cutting pollution where it is cheapest.
Why it matters
Mechanism design, founded by Hurwicz, guides how auctions, regulations, school-assignment systems and markets are built so that they work even when people pursue their own interests.
About Leonid Hurwicz
Moscow-born, Warsaw-raised Jewish refugee with no economics degree who founded mechanism design, the theory of building rules and markets that work even when people try to game them. Nobel 2007.
Sources
- Information for the Public: The Prize in Economic Sciences 2007 NobelPrize.org
- Leonid Hurwicz, Biographical NobelPrize.org
- Leonid Hurwicz Wikipedia
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.