What New Nobel Laureate Roger Myerson Is Talking About Tonight

At a Nobel press conference yesterday, a reporter asked Roger Myerson to name the next important thing he had on his agenda. Myerson responded that he had to give a speech for Gary Becker‘s workshop the next day — i.e., today.

The paper he is presenting is not your typical economics paper, especially for someone who just won the Nobel Prize for his highly mathematical contributions to economic theory. Rather, the question he addresses in this paper is how one might think about creating a functional new Iraqi state. His conclusion is that there is no single equation.

Oversimplifying (and probably butchering) Myerson’s arguments, I interpret what he is writing as follows: Paul Bremer wrongly concludes that a good constitution is what is needed to establish a state. What we really need are ways to allow the government to generously pay people who do good work for the government, and to fire or punish government employees who perform poorly. The most effective way to accomplish this goal is to backload the rewards of government service, in the form of actions like patronage. For such a rewards system to work, though, one needs the assurance that the government will make good on future promises. The best way to create the necessary trust is to have strong leaders who have built a reputation on keeping their word.