Jeff and I blogged about externalities.  But there is another aspect to the bailout.  How should toxic assets be priced and why are they toxic in the first place?  My old friend and co-author Sandro Brusco blogs about this issue at noiseFromAmerika, a fun blog site managed  by a number of well-known Italian economists.  Sandro’s blog is an excellent exposition of the theory of mechanism design and it’s application to pricing.  Mechanism Design is the field in which Hurwicz,  Maskin and Myerson made fundamental contributions and got the Econ Nobel in 2007.  I work in this area, as does Jeff and my buddy Tomas Sjostrom who is now on the Nobel Committee (no, it’s not a secret!).  You can find a link to his discussion of the 08 prize on my research webpage (as well as all our papers!).   A general audience description of the area is here and a technical one is here.

PS I’ll be blogging on my own perpective on pricing later on!