Monday, October 15, 2007

The MDT

I will be perfectly honest; I am sure I have heard of the Names Hurwicz, Myerson, and Miskin, but can’t remember where, except possibly a Golf Tournament. I did once read a couple things written by Miskin, though where, what, or how come totally escapes me. MDT, or mechanism design theory, reminds me of what my Mechanic tells me about vehicle maintenance. I suspect I may have listened to Hurwicz once at UNL, if he did once Guest lecture there; though undoubtedly I must have slept through the performance. This Post by Alex Tabarrock introduces me to my first cognitive awareness of MDT. I come well-prepared to honor the new Nobel-ity.

The outline of MDT, as gifted to myself by Alex, leaves me perplexed and needing more study. The entire theory seems to revolve around Hayek’s imperfect information. It also poses the ethical problem of conditioning Response to provide the Seller with information, while presenting the potential Buyers with increased imperfect information. The participation constraint seems devoid of capture, as all potential Buyers have the imagery of successful bidding; where they devote labor in documentation and evaluation under the expectation of success, under the illusion that the Seller will entertain their bid. Only one potential bidder will find his effort worthwhile, and he will have to pay more for his extended participation, so the incentive compatibility constraint cannot be truly induced. The Seller locates a higher Price, but only by the creation of Market restraints which hides the true value of the Product.

I am sure I also missed some true value in the MDT, but I feel some degree of moral revulsion at the use of imperfect information to mask true Market values, while organizing the Market structure to deceive the potential Buyers. It is again using institutional practice to freeze out potential individual profit, which is otherwise guaranteed under free market structure. There is also great danger in masking true market values, leading to overpriced Product propelling hazardous levels of Inflation. I am sure Hurwicz, Meyerson, and Miskin are quite honorable, hard-working Economists who deserve their reward; I just wish this blessing was based on something other than MDT. lgl

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