According to the Royal Swedish Academy of Sciences, the theory emerged as a means of examining the allocation of resources in markets that are not completely free.
"What is the optimal mechanism to reach a certain goal, such as social welfare or private profit? Is government regulation called for, and if so, how is it best designed?"
The Academy awarded the prize to the three laureates for developing a theory that helps answer these difficult questions.
"Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals' incentives and private information. The theory allows us to distinguish situations in which markets work well from those in which they do not," said the Academy in a statement.
Born in Moscow in 1917, Leonid Hurwicz is Regents' Professor of Economics Emeritus at the University of Minnesota.
Eric S. Maskin, born 1950, is a professor at the Institute for Advanced Study at Princeton, New Jersey.
Roger B. Myerson was born in Boston in 1951 and is a professor at the Department of Economics, University of Chicago.
The Nobel Prize in Economics has been awarded annually since 1969 having been instituted a year earlier by the Swedish central bank, Sveriges Riksbank. The prize is awarded by the Royal Swedish Academy of Sciences in accordance with the same principles as those governing all other Nobel Prizes.