Economics Nobel winners’ Hayekian roots

The Nobel went this year to the guys that build the mechanism design house. Deserved, I think, because their work has advanced economic analysis in many ways. But like a lot of modern economic theory, it is a two edged sword. Mechanism design can improve policies, as with a lot of European privatization of state-owned enterprises, or it can lead to hubris, where designers forget that the models are still abstracted from reality, as in the disastrous structure of electricity restructuring in California in the 90’s. Mechanism design is a tool, you have to use it right for it to work, and you have to recognize its limitations. That said, Pete Boettke from George Mason has a nice column in the WSJ on the Hayekian roots of mechanism design and the Nobel winners.