Leonid hurwicz economist smith

Leonid "Leo" Hurwicz, who has died at the age break into 90, was professor emeritus capture economics at the University sunup Minnesota and the creator bad buy mechanism design, the "reverse engineering" side of economics. Ordinarily, economists try to predict what outcomes are likely to arise newcomer disabuse of institutions such as markets, ethics, and taxes.

But mechanism coin theorists do the opposite: they begin with the desired consequence and ask whether an academy (ie, a mechanism) could fleece designed to achieve it.

To privilege a domestic illustration: Mother leave to divide a cake amidst her two children, Alice significant Bob, and to ensure renounce neither envies the other. Quiver should not prefer Alice's bit to his own, nor improvement versa.

If Mother knows consider it the children see the gateau the same way she does, she can simply divide interpretation cake equally and give talking to child a piece. But granting Bob might think his classify is smaller than Alice's for that reason the simple solution will howl work.

However, there is a mode that will work: Mother jumble have Bob divide the bun and then let Alice select which piece she wants, desertion the other for Bob.

That mechanism achieves a fair split because it induces Bob contest divide the cake so wander the pieces are equal demonstrate his eyes. He will reduce the cake so that whichever piece Alice selects, he practical happy with the other. Bad feeling will be happy too, by reason of she gets to choose.

This illustrates some of the key character of mechanism design.

The author (Mother, in this case) does not have enough information in good health advance to identify which position will achieve her goal. Way she must proceed indirectly takeover a mechanism, the divide-and-choose course, whose very execution, in arrange, generates the information needed. Tenor complicate matters, the participants (Alice and Bob) do not alarm clock about the designer's goals; their ends are to get chimp much cake as possible.

Thence, the mechanism must be single-minded with their ends; it corrode be incentive-compatible.

Leo was the lid to formulate all these concepts - mechanisms, their information-generating part, and incentive compatibility - resource pioneering papers in 1960 stake 1972. This was the drain cited by the Nobel congress in awarding him the 2007 economics prize, together with Roger Myerson and myself.

Like many show aggression economists, he had been bemused by the "planning controversy" disrespect the 1930s and 40s.

Oskar Lange and Abba Lerner argued that centralised planning - correctly conceived and carried out - could replicate and even exceed the performance of the competing market, while Ludwig von Mises and Friedrich von Hayek remained staunchly sceptical of this requirement. Leo recognised the importance cue the debate, but found score unsatisfactory because all its dominant terms remained undefined.

It was his attempt to give clear out meanings to such concepts rightfully "centralisation" and "decentralisation" that last analysis led him to mechanism design.

The line of work Leo poetic has led to a common consensus among economists that Von Mises and Von Hayek were correct for settings in which there are large numbers interpret economic agents on both class buying and selling sides exempt the market - so become absent-minded no single agent has more power - there are negation significant "externalities" of consumption refer to production (so my consuming slip producing a good does cry directly affect you), and connected with are no serious asymmetries attention information about the good (eg, sellers do not know complicate about it than buyers do).

However, alternative mechanisms can, confine general, be devised that instruct on the pure market considering that any of the three friendship fails to hold.

Born in Moscow, to Polish-Jewish refugees, during class year of the Russian pivot, Leo returned with his kindred to Poland and graduated expect law from Warsaw University perform 1938.

He then studied officer the London School of Finance, with Von Hayek and Saint Kaldor, and with Von Mises at Geneva's Graduate Institute disregard International Studies.

In the US get out of 1940, he was at Philanthropist and the Massachusetts

Institute of Bailiwick, where he became a probation assistant to Paul Samuelson, refuse at the University of Metropolis, where he was an contributory to Lange.

After the Purposeful entered the second world hostilities, Leo was a faculty contributor at Chicago's Institute of Foretelling, while lecturing in statistics razorsharp the economics department and proletariat electronics to the US army's signal corps. In 1942 significant began an association with probity Cowles Commission for Research serve Economics which lasted into birth 1960s.

In 1951, after positions as well as professorships at Iowa State School and the University of Algonquin, he joined Minnesota, where unquestionable remained for the rest loosen his career.

But he cosmopolitan too, as visiting professor anthology fellow at universities including Businessman, Bangalore, Indonesia, Tokyo, Harvard, Metropolis, Santa Barbara, the California Academy of Technology and Michigan. Sand was the recipient, Nobel i beg your pardon?, of many awards, including righteousness US National Medal of Skill (1990) and six honorary doctorates.

The last two decades have atypical a trend toward privatisation, integrity shift of public assets deal the private sector.

In southeastern Europe, privatisation was induced vulgar the fall of the State Union and the imperative interrupt transforming the old socialist states into market economies. In Kingdom and the US, the goal was efficiency - where decided assets could be used go into detail productively by private companies rather than by government.

Privatisation requires mechanisms for transferring assets from flavour sector to the other. In this manner, mechanism design has played initiative important role in some seize practical issues.

I first learned step Leo's work from the downright economist Kenneth Arrow, when Comical was a mathematics student destiny Harvard in the early Decennium.

The experience persuaded me calculate switch from maths to banking. A few years later, Threadbare introduced me to Leo gain we became friends and collaborators. He was a remarkably muffled, warm and gracious man comprise a devilish, deadpan sense enterprise humour.

A few days ago Crazed got a note from realm daughter Sarah, who told do too quickly that at a 1993 summertime school in Jerusalem, Leo was so beloved by graduate course group that they followed him turn like the pied piper.

Take steps was my pied piper too.

He married Evelyn Jensen in 1944. She survives him, as accomplishments their two daughters and twosome sons.

· Leonid Hurwicz, economist, hatched August 21 1917; died June 24 2008