The recent Economics Nobel announcement, which went to Lloyd Shapely and Alvin Roth for theoretical and practical innovations in matching processes, has prompted some misguided carping among market-oriented commentators. The Andrew Coulson post from Cato-at-Liberty (which Lynne quoted favorably yesterday) is one example. Robert Wenzel is another (calling it a prize for “work that really doesn’t even need to be done, if the free market were allowed to operate”). David Henderson’s Wall Street Journal column and related EconLog post is the more thoughtful, non-carping version of the complaint.
The complaint seems to be that the matching innovations are particularly useful in non-price environments where markets are mostly absent–Roth’s applied work has been in medical labor markets, public school choice, and kidney swaps–and the commentators prefer pushing markets as a superior approach to tinkering with non-price mechanisms.
I think Virginia Postrel has a much better reaction to the prizes (and one which takes some care to try to make the main theoretical insights accessible to intelligent non-specialists, so if you’re curious about the prize please do go read her column), “An Economics Nobel For Saving Lives.” Here is a piece:
Roth, whose “market design” bridges economics and operations research, is known for developing algorithms to find the best available matches in real-world situations: medical residencies, public schools and … kidney transplants from living donors. “He likes to study markets that don’t involve money,” says Michael Rees, a kidney transplant surgeon at the University of Toledo Medical Center in Ohio who has worked with Roth on paired kidney donations.
There’s no intrinsic reason … that the kidney market couldn’t involve money, since a paid donor wouldn’t care who exactly got the kidney, as long as the price was right. About 94,000 Americans are on the waiting list for kidneys. Last year, fewer than 17,000 got transplants, about 11,000 of them from deceased donors. If transplant centers offered sufficient compensation, they could enlist enough living donors to eliminate rationing. The reasons they don’t are cultural, legal and — to someone more appalled by needless suffering than by commercial transactions — infuriating.
Roth, who recently left Harvard for Stanford, isn’t trying to change laws or attitudes about the kidney shortage. Those may change in the long term, but his concern is the present.
And, as Postrel points out, Roth’s concern for the present has increased the number of kidney transplants that have taken place over the last several years, radically improving the quality of life for the additional transplant recipients.
[U]nlike the economists, wonks and polemicists who rail against the prohibition of organ sales, Roth can claim credit for actually increasing the number of kidney transplants. “Alvin Roth has been a major contributor to the fastest-growing source of transplantable kidneys in America, and probably in the world, through paired donation,” says Rees.
Relatedly, at ThinkMarkets Mario Rizzo objects to the “economist as engineer” mindset that Roth promotes. With all due respect, I think Rizzo is wrong in his objections to the kind of work Roth does. Roth isn’t trying to play central planner, he is just applying economists’ understanding of incentives, preferences, and choice to promote institutional reforms. In fact, I would go further to say that Roth’s work is helping to reform central planner-type institutions with institutions that better respect the knowledge and values of persons affected. Sounds like good work to me.
Hayek has an interesting remark in The Road to Serfdom which seems on topic: “There is, in particular, all the difference between deliberately creating a system within which competition will work as beneficially as possible and passively accepting institutions as they are. Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez faire.”
Roth’s works seems somewhat like “creating a system” in the Hayek quote, and the carping critics mentioned above sound a lot like the “wooden insistence of some liberals on certain rules of thumb.”
NOTED: Eric Crampton has comments along the same general theme as mine, concluding that sometimes “the best we can hope to do is make things suck less,” and on these grounds Roth is a clear success.