In the last two decades, mechanism design theory is the fastest growing branch in the field of micro- economic with a very broad application space in the practical economy. Also, mechanism design theory brings new study framework for management. Instead of management function theory, mechanism design theory can reveal management activities better. This article will review the development of mechanism design theory in economics and management science, so that it can lay the foundation for future research.
In the 1930s, there had a famous controversy in western economic circles. In this debate called socialism big controversy, liberal economists such as Mises and Hayek argue that socialism is impossible to obtain the information which can maintain the operation of economics effectively. In 1920, Mises denied the possibility that socialism could implement the economic accounting and allocate resources reasonably. He believed that only the monetary-price instruments formed on the production market which in the private ownership society could implement the economic accounting [
Famous American economist, Hurwicz did groundbreaking research about the economic mechanisms theory in the last century. The issues he discussed are: for any economic or social objectives have given, under the decentralized decision-making conditions, for example, free choices, voluntary exchange, incomplete information, whether or how to design an economic mechanism, which can make the personal interests of economic actors in accordance with goals established by designers. From the point of research paths and methods, in the study of traditional economics, the market mechanism has known by which can study what kind of configuration will be leaded. Mechanism design theory puts the social goals as known, trying to find economic mechanism that can achieve the stated social objectives. Specifically, game theory can help solve the problem above. To meet the conditions of each participant constrained, the interaction of tactics chose by participants in the self-interested behavior can put configuration result as same as the expected objectives [
Mechanism design usually involves two issues: information efficiency and incentive compatibility. Information efficiency is the problem how much information needed to make sure economic mechanism can achieve the stated social objectives. In other words, it is the cost of operation mechanism. Information efficiency demand the mechanism need less information about consumer, producer and other participants of economic activities and lower information cost [
In the beginning of the study, Hurwitz is mainly concentrated in the cost of computing and mechanisms’ information, without considering the incentive problem. Incentives theory of team production which Alchian and Demsetz proposed is largely fill this gap. They believe that the essence of business is the “team production”. Farm-out among employees can produce business productivity. It is difficult to measure individual employee contributions, so that which can’t be paid according to an employee’s contribution, thus it may lead to lazy (“free rider”) issues. In order to solve this problem, supervision is introduced, who is stimulated by giving residual claimant right [
Ito researched incentive issues of team production from the opposite perspective. Most of the previous literature in the study, are focusing on how to solve the “inferior” of the work in teams effectively “free rider” behavior. Ito studied how to design mechanisms so that team members can help each other. He was dividing the problem into two parts: First, let employees’ income to some extent dependent on the performance of others, inducing people to help each other; the second is the impact to the client’s interests if they help each other [
In addition, the formation of display principle and development of implementation theory has further deepened the mechanism design theory in the 1970s. Display principle greatly simplifies the analysis of mechanism design theory problems. After Gibbard (1973) proposed a direct display mechanism, Myerson (1979) extended it to a more general Bayesian Nash equilibrium, and pioneered research in the regulation theory and auction theory and others [
Foreign research on management mechanism often explores appropriate management mechanism combined with specific industry or specific issues. Gregory M. parkhurst analysis the disadvantage of the US “Endangered Species Act”, “tradable development rights policy”, offered to grant compensation mechanism as a dual mechanism, and with the Vickrey-style auction mechanism to achieve compensation pricing of protected areas, and achieve social objectives of species conservation by use policy mechanism rather than “command-control” [
In the 1990s, some Chinese scholars began to study management mechanism design theory, such as Sunshao Rong and Qinsheng Zhang. Sunshao Rong based on the “general principles of management mechanism” that is expected of managers, the principle of relationship between the expected return of objects managed and managers’ behavior, research management mechanism design steps and technical issues related. Qinsheng Zhang was based on systems engineering, and group decision-making and mechanism design theory, studied the issues of equal rights and responsibilities, information and incentive, complement and develop the Western theory of mechanism design.
Sunshao Rong and Qinsheng Zhang thought management mechanism is the mechanism of management system operation, the role of managers is to let people managed develop or move toward a certain state. People managed have some kind of spontaneous pursuit, which would be satisfied by achieving the goals what managers made. Which can induce people managed to act in accordance with the manager’s will-called “demand principle mechanism”. Designing management system is divided into four steps by them: the tendency analysis (analysis the target pursue of people managed), returns analysis (what managers provided are meet the needs of people managed), state analysis (measure the performance of the people managed), the state and the return connection (the people managed are paid based on performance). Sunshao Rong put forward the concept of “knot”, used to describe the relationship between performance and reward, and study all its manifestations of the “knot”. [
Domestic scholars have realized the importance of research management issues in the mechanism level, as lacking of normative research methods, there is no broad impact. So the next direction of our research is to study the enterprise management in mechanism level, to understand management problems in essence, and to solve the problem form the source.
Xin Zhou, (2016) Mechanism Design Theory: The Development in Economics and Management. Open Journal of Business and Management,04,345-348. doi: 10.4236/ojbm.2016.42036