Market design helps people attain goals effectively

Michael Giberson

Harvard economic systems designer Al Roth is profiled in the Boston Globe:

Academically speaking, Roth is a pioneer of so-called market design: finding situations where a market is failing — often, a place that most people wouldn’t even recognize as a market — and making it work better. Roth has influenced a cadre of young, energetic market designers, many of whom have taken up prominent positions at top universities. Inspired by Roth’s work, these rising economists are also setting their sights on real-world problems. Some are looking at dating websites; others are interested in how universities could do better at scheduling their students’ classes. Like Roth, all of them envision a world in which economists, as unlikely as it may seem, are recognized as society’s mechanics.

Some market-oriented people will react negatively to the idea of “economists … as society’s mechanics,” but the negative reaction is based on a misunderstanding. Roth is no central planner. The point is to rework organizations so that participants in those organizations can more effectively achieve their goals.

When most people think of economics, they think of money — the study of how much things cost and why. Roth distinguishes himself by being more interested in situations where money plays little or no role — for instance, the process that determines who among the thousands of patients awaiting kidney transplants nationwide should receive the small number of organs that are available. As a society, we’ve decided we’re not comfortable with people selling their organs, so some other system — some other kind of market — is required. And a market, in Roth’s view, does not necessarily come down to prices, nor is it always ruled by simple principles like supply and demand: As long as people are competing with each other to get what they want, then resources are being allocated, and that means economists should be thinking about it.

One response to the lack of markets for transplantable kidneys is to agitate for change, to advocate lifting the regulations that prevent it. (Same for bone marrow.) These are good ideas. While we wait for society to get over its squeamishness at allowing compensation to donors, Roth’s kidney exchange is enabling more people to obtain transplants now. And Roth’s work on repugnance in markets is helping probe the reasons many people are reluctant to let markets work in this realm, so useful to advocates for change.

A by-product of working in areas where money plays little or no role is becoming sensitized to the role that money plays when it is allowed:

The trouble is that when you can’t rely on prices to stand in for value, things get complicated. In typical markets, “Money finds the matches,” said Utku Ünver, an associate professor of economics at Boston College who has collaborated with Roth on projects. “But when there’s no money, there’s lots of friction, and there are lots of things that may cause these markets to fail and not function efficiently.”

When you can’t use prices to express how much something’s worth, in other words, figuring out who should get what becomes a complicated business. “That’ll kill your economics 101 market real quick,” said [MIT economist Robert] Gibbons. “Al comes along to help you with situations where you’re not allowed to use the price mechanism.”