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Palgrave Macmillan
ISBN 9780230620070
Publication Date March 2009
Formats Ebook (PDF) Hardcover 
Publisher Palgrave Macmillan

This book combines economic theory and design to create tools that economists can use to apply in social, political and institutional application. This book seeks to provide the necessary stepping stones in order to facilitate the diffusion and adoption of this powerful tool for studying incentive structures in economics. The book presents a number of examples, both theoretical and real-life.It also has a chapter that samples the literature that tests mechanisms away from the blackboard, in laboratories and the real world.

This book provides readers (students and applied economists) with the tools to design the rules of economics to harness the power of incentives.

Dimitrios Diamantaras, Associate Professor of Economics, College of Liberal Arts, Temple Universityjoined the economics department at Temple in 1988, upon completing his Ph.D. studies at the University of Rochester. He has taught many different courses at Temple at all levels, including courses in microecomic and macroeconomic principles, intermediate and graduate microeconomics, game theory, economics of fairness, mathematical economics, the economics of risk and uncertainty, a course he created in 1999, and the economics of arts and culture, a course he created in 2003. His research focuses on public economics, general equilibrium and game theory. His publications have appeared in Economics Letters, Social Choice and Welfare, International Economic Review, Journal of Mathematical Economics, Journal of Economic Theory, Economic Theory, Journal of Public Economics, Review of Economic Design, Division of Labour and Transaction Costs, and Journal of Economic Behavior and Organization. He was named Fuller Research Fellow for 1998-2000 by the Fox School of Business and Management.

Contents
Introduction 1
A Story from Ancient Athens
Institutions and Economics
The Big Picture
Auction Example
A Taste of Social Choice Theory
Arrow's Impossibility Theorem
Social Choice Functions
Economic Domain
Exchange Economies
Social Choice Correspondences on the Exchange Economy Domain
The Pareto Social Choice Correspondence
The Individually Rational Social Choice Correspondence
The Core Social Choice Correspondence
The No-Envy Social Choice Correspondence
Combinations of the previous Social Choice Correspondences
The Walrasian Social Choice Correspondence
Quasilinear Preferences and Their Uses
Appendix: Proofs
Arrow's Impossibility Theorem
Gibbard-Satterthwaite Theorem
Exercises
Dominant Strategy Implementation
Definitions
Revelation Principle
Restricting Domains: Single-Peaked Preferences
Restricted Domains: Quasilinear Domains and Groves Mechanisms
Balance Problem
Voluntary Participation Problem
The Vickrey Auction
Exercises
Implementation in Nash Equilibria: A Lot of Information Assumed
A Quick Lesson on Nash Equilibrium
Nash Equilibrium in Mixed Strategies
Nash Equilibrium in Implementation
Strategy Space Reduction
Two Person Cases
Exercises 4 Bayesian Equilibrium and Mechanisms
Preliminary: How to Represent Information
Bayesian Equilibrium
The Bayesian Revelation Principle
The Mechanism of d'Aspremont and Gérard-Varet and of Arrow
Voluntary Participation
Optimal Auctions
Bilateral Trading
Exercises
Refined Nash Implementation
Implementation in Subgame Perfect Equilibrium
Subgame Perfect Implementation in Quasilinear Environments
Implementation using Undominated Strategies
Double Implementation
Definitions
Ratio Correspondence
Virtual Nash Implementation
Applications
Manipulation-Resistant Online Reputation Systems
Walrasian Implementation via Market Games
Implementing the Lindahl Social Choice Correspondence
Implementing Fair Allocations
Application to Negative Externality Problems: Pollution Abatement
A Nearly Efficient Mutual Insurance Mechanism
Financing the Athenian Fleet
Bayesian Implementation
Example of Multiple Bayesian Equilibria
Bayesian Implementation and Bayesian Monotonicity
Resrictiveness of Bayesian Monotonicity
Virtual Bayesian Implementation
Further Topics in Mechanism Design
Endogenous Mechanisms
Notation and Definitions
An Application: Public Goods
Positive Results for Endogenous Games with 3 or More Players
Overcoming Incentive Constraints by Linking Decisions
Notation and Definitions
Results
Robust Mechanism Design
Notation and Definitions
Results
The Limits of Ex Post Implementation
Notation and a Result
An Illustration of the Geometric Condition
Exercises
Matching Models: Theory and Applications 203
What is Matching?
Definitions and Notation
Two-Sided Matching
One-to-One Matching
Many-to-One Matching
One-Sided Matching
The Shapley and Scarf House Market
House Allocation Problems
The Kidney Exchange Problem
Exercises
Empirical Evidence on Mechanisms
Introduction
Voluntary Contribution Mechanisms for Public Goods
Tests of Incentive Compatibility
Research on Mechanism Dynamics
Tests of Implementation Concepts
Applied Economic Design: Notes from the Field
Conclusion
A Mathematics Review and More on Economic Domains
A.1 Sets, Correspondences, Functions, Intervals
A.2 Derivatives and Related Notation
Elements of Mathematical Optimization
Envelope Theorem
The Edgeworth Box
Public Good Economies
The Simplest Public Project Model
Public Goods Models
Social Choice Correspondences on Public Good Economy Domains
Pareto Social Choice Correspondence
Lindahl and Constrained Lindahl Social Choice Correspondences
Ratio Social Choice Correspondence
Exercises Notation Bibliography
Index

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Reviews

"This is an outstanding book on mechanism design. The fundamentals are superbly presented. And there is considerable advanced material from the last few years of research - also extremely well presented. An instructor could take a second year undergraduate class through the book by using only the introductory passages and the attendant examples, which are excellent. A more advanced undergraduate class can work through the theorems and proofs. Nor is this book out of place at the graduate level." - Don Campbell, CSX Professor of Economics and Public Policy, The College of William and Mary"Until now there has not been a good textbook to acquaint students with the field of economic mechanism design. This textbook fills this gap very competently. This book brings together a well-developed introduction to the field, including recent developments in the various branches of this field, as well as applications of the main mechanism design tools to understand many real-life problems. In particular, this text provides tools to understand the proper design of economic policy, which is very welcome in view of the problematic economic policy design for our contemporary complex global economy. A Toolbox for Economic Design provides exactly the right balanced set of material to cover the increasingly important field of economic mechanism design in any bachelor, master or even Ph.D. program in economics." - Robert P. Gilles,Professor of Economics, Virginia Tech
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