Abstract

Xenophon, the first economist in the history of humanity, founded the discipline of economics by pointing out in his book Oeconomicus that the economic problem may be alleviated through wise management of scarce resources and simultaneously, through the search for and implementation of incentive mechanisms by relying on mediating institutions. Xenophon’s contribution regarding incentive mechanisms had been ignored until 2007, when Roger Myerson, in his Nobel Prize talk, eloquently gave him full attribution. In this paper I describe Xenophon’s description of the economic problem and attempt to illustrate the importance of mediation in conjunction with construction of incentive-compatible constraints. My analysis points out that Xenophon’s ideas on mediation and incentive-compatibility can potentially eliminate bottlenecks associated with asymmetric information issues in market systems. Elimination of such bottlenecks can improve the well-being of all agents and their stakeholders in local and global markets.