Improving the world with mechanism design
Mathematics and social awareness, classical music and jazz piano: these are just some of the passions that define who Maskin is and what he does.
"For me, harmony is taking different parts, different lines of music, of economics, of anything, and putting them together in such a way that makes them seem like they belong together. Harmonizing is making many parts into a unified whole."
Maskin uses a similar approach to his research on mechanism design. He takes different interests and mixes them together to create valuable ideas that enrich our world.
Mechanism design, it seemed to me, could help improve the world and affect many people’s lives," he notes, thoughtfully. "So I thought that was a great combination, the best of two worlds: the mathematical world and the social world.
The problem with relative-majority elections
For Maskin, the world has been in need of a helping hand for quite some time. Economics could, for example, emphasize how our electoral systems might not really be democratic. He cites the 2003 US presidential election, the outcome of which was determined by the state of Florida. There were three names on the ballot: George W. Bush, Al Gore and Ralph Nader. Of the three candidates Bush won the most votes, but evidence suggests that had Nader’s name not been on the ballot, there would have been a different outcome. “If it had been a head to head contest, Gore would have won quite easily", Maskin asserts. "What you should do is to allow voters to rank candidates, as this would be more likely to lead to a 'true majority winner'."
"As I went to college in the late 60s and early 70s, it was a time of considerable political and social unrest. I think it was pressed on us all that we had an obligation to think not only about our careers but also about important issues facing the world. I realized that economics was one way of doing that."
Getting the outcomes you want
When he was majoring in mathematics at Harvard, Maskin happened to take his first undergraduate class in economics, where he studied under Nobel laureate Kenneth Arrow. It was in there that Maskin learned about mechanism design, the engineering aspect of economics: there’s a goal you’d like to reach and a mechanism in place to help you reach it. "It’s actually reversed engineering," Maskin explains, hardly hiding his excitement in illuminating the theory to a new audience. "We start with outcomes, we say these are the outcomes we would like to have, and then we work backwards, to figure out a mechanism or an institution, which will generate those outcomes."
Watching Maskin cook together with his wife brings this theory to life: he thinks of a goal he wants to accomplish and blends the ingredients together to achieve the result. Similar to recipes, the economist explains:
Mechanisms are the set of rules that participants might follow in order to determine an outcome. Each participant in the mechanism will, of course, be following their own rules and trying to achieve their own goals - which aren’t necessarily the same as the goals of the mechanism designer.
One of the biggest challenges in mechanism design is that the goal of the designer doesn’t always match the goals of the participants. For instance, while a government’s goal could be to reduce CO2 emissions, an electricity company’s goal might be profit maximization. To see whether it’s possible to achieve the designer’s goals through a mechanism, Maskin came up with a condition to test: monotonicity, often referred to as the Maskin Monotonicity. This is "a property of the mechanism designer’s goals and the connection of those goals to individual goals, which, if satisfied, means that you can find a mechanism. In fact," he suggests, "you could actually follow an algorithm, which would lead you to such a mechanism."
Which real world problems can be solved?
There are many situations where mechanism design can be applied to achieve a socially desirable outcome and solve pressing real-world problems. Maskin’s theory has relevance in everything from environmental policy, electoral systems and financial markets, and many more besides. On top of these theoretical potentials, Maskin has actually had the opportunity to implement his work, and three concrete examples outline the far-reaching implications of his ideas. Mechanical design was central in the design of decentralization and privatization mechanisms in Poland in the 90s; it allowed the Bank of Italy to reform the system of selling treasury bonds; and it helped the British government to develop restrictions on CO2 emissions for electricity-generating companies after it signed the Kyoto protocol.