Abstract
Author(s): Kominers, SD; Teytelboym, A; Crawford, VP | Abstract: Market design seeks to translate economic theory and analysis into practical solutions to real-world problems. By redesigning both the rules that guide market transactions and the infrastructure that enables those transactions to take place, market designers can address a broad range of market failures. In this paper, we illustrate the process and power of market design through three examples: the design of medical residency matching programmes; a scrip system to allocate food donations to food banks; and the recent 'Incentive Auction' that reallocated wireless spectrum from television broadcasters to telecoms. Our lead examples show how effective market design can encourage participation, reduce gaming, and aggregate information, in order to improve liquidity, efficiency, and equity in markets. We also discuss a number of fruitful applications of market design in other areas of economic and public policy.
Highlights
Market design seeks to turn economic theory and analysis into practical solutions to realworld problems
The goal of the market design approach is to mitigate some of the frictions and externalities that prevent markets from reaching the first best,1 while at the same time aligning market outcomes with society’s objectives beyond pure economic efficiency
In 2005, in consultation with a team of academics from the University of Chicago, Feeding America switched from rationing offers to a marketplace solution: Each day, Feeding America operates daily spot markets for food donations, using a scrip currency called “shares” (Prendergast, 2017)
Summary
Market design seeks to turn economic theory and analysis into practical solutions to realworld problems. Market(place) design has evolved into a field in its own right, involving not just economists, and computer scientists, operations researchers, engineers, and practitioners (Klemperer, 2004; Milgrom, 2004; Roth, 2015; Fisman and Sullivan, 2016). This issue of the Oxford Review of Economic Policy presents a number of policy and business domains in which market design has played—and continues to play—a crucial role. The settings we discuss offer many exciting theoretical and practical directions for market design
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