The Design of Mechanisms for Resource Allocation

This chapter assesses the design of mechanisms for resource allocation. There is a close relationship with information theory and with problems of administrative organization. For linking up resource allocation with information processing and organization, major credit must go to Jacob Marschak’s development of economic theory of information and to Herbert Simon for his work on organization and economic behavior. There are two categories of results in the theory of organization. On the one hand, quite a few specific allocation mechanisms have been invented and their properties, such as feasibility, optimality, and convergence, rigorously established. On the other hand, there are also some more general results, dealing with the possibility or impossibility of various types of decentralized mechanisms, depending on the environments with which they must cope. The chapter mentions a few of these results, following the sampling of the specific mechanisms and the discussion of a framework required for formulating the more general questions.