Posted in Finance, Accounting and Economics Terms, Total Reads: 309
Definition: Mechanism Design
Mechanism Design is a branch of microeconomics that helps in understanding how businesses and institutions can achieve the desired social or economic goals under the constraints of incomplete information and a person’s self interest.
According to this, people, when acting in their own self interest, are not very keen on giving out all the accurate information they have with them.
In mechanism design all the private information and incentives are taken into account for enhancing comprehension of market mechanisms of the economists and for showing how by providing the right incentives (money) can help in making the participants reveal the information privately known by them and thus helping to create the desired optimal outcome.