Mechanism Design & Management: Mathematical Methods for Smart Organizations

Mechanism Design (MD) is a branch of game theory which deals with conflict situations involving a principal and a set of active agents (usually in the presence of asymmetric information). Mechanism design theory delivers a solution to many management problems in the form of a control mechanism, (i.e., a formalised routine of decision-making). Formal results of MD can change the fundamentals of managerial practice by introducing decision-making mechanisms in organisations, which are efficient and robust with respect to employees’ self-serving behaviour. The proposed book seeks a more intensive application of MD methodology and its formal results in organisations. The main aim of the book is to provide readers with the basics of an MD-based view on managerial problems, so that intra-firm policies can be analysed through the looking glass of employees’ behavioural response. A systematic introduction of the underlying MD methodology is combined with a collection of ready-to-use mechanisms for solving typical management problems. The use of MD by individual managers is facilitated by bringing together mathematical and business literature in a single treatise. This book is not a purely academic monograph as it contains as few formulas as possible, and no formal proofs (references to formal results are provided throughout the text). Courses on MD for managers are not common in business schools now, and our book represents the perfect material for such a course.