MORE ON THE 2007 PRIZE IN ECONOMICS

This is from the Nobel site and gives a better idea about what the 3 winners accomplished:

In some cases, no market mechanism can ensure a fully efficient allocation of resources. In such cases, mechanism design theory can be used to identify other, more efficient institutions. A classic example concerns public goods, such as clean air or national security. Paul Samuelson (1954) conjectured that no resource allocation mechanism
can ensure a fully efficient level of public goods, because “it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective activity than he really has...” (page 388 op. cit.). Mechanism design theory permits a precise analysis of Samuelson’s conjecture. More generally, the theory can be used to analyze the economic efficiency of alternative institutions for the provision of public goods, ranging from markets and consensual collective decision-making through majoritarian decision rules all the way to dictatorship. An important insight is that consensual decision-making is frequently incompatible with economic efficiency. The theory thus helps to justify governmental financing of public goods through taxation. Applications of mechanism design theory have led to breakthroughs in a number of other areas of economics as well, including regulation, corporate finance, and the theory of taxation.