Nicolo Machiavelli and the Origins of Mechanism Design

In matters of public policy economists often design incentives and constraints so that economic actors with unrestricted preferences (including the self interested motivations of Homo economicus) will implement socially desired allocations. This paradigm, which dates to Machiavelli and somewhat later to Mandeville, Hume and Bentham, contrasts sharply with an earlier approach initiated by Aristotle, in which good governance entailed the cultivation of good citizens. Modern mechanism design, contract theory, and behavioral economics provide a critical perspective on the Machiavellian paradigm, and suggest a reformulation along more Aristotelian lines.