November 22, 2007
I highly recommend Al Roth's new research paper, "What Have We Learned from Market Design?" The piece is an NBER Working Paper; so, you'll only be able to access it for free if you have an institutional account. Otherwise, it will cost $5.
The article begins with the general lessons that we have learned from designing markets and then considers the resident matching program, kidney exchange, and the market for new economists as examples. The five general lessons of market design are these: "To work well, marketplaces need to: (1) provide thickness -- that is, they need to attract a sufficient proportion of potential market participants to come together ready to transact with one another; (2) overcome the congestion that thickness can bring, by providing enough time, or by making transactions fast enough, so that market participants can consider enough alternative possible transactions to arrive at satisfactory ones; (3) make it safe to participate in the market as simply as possible (a) as opposed to transacting outside of the marketplace, or (b) as opposed to engaging in strategic behavior that reduces overall welfare; and these lessons: (4) some kinds of transactions are repugnant, and this can be an important constraint on market design; and (5) experiments can play a role, in diagnosing and understanding market failures and successes, in testing new designs, and in communicating results to policymakers."
November 22, 2007 | Permalink
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