What Have We Learned from Market Design?


  •  This article was prepared to accompany the Hahn Lecture I delivered at the Royal Economic Society meetings, on April 11, 2007 at the University of Warwick. The work I report here is a joint effort of many colleagues and coauthors. I pay particular attention here to work with Atila Abdulkadiroğlu, Muriel Niederle, Parag Pathak, Tayfun Sönmez and Utku Ünver. I have also benefited from many conversations on this topic with Paul Milgrom (including two years teaching together a course on Market Design). This work has been supported by grants from the NSF to the NBER.


This article discusses some things we have learned about markets, in the process of designing marketplaces to fix market failures. To work well, marketplaces have to provide thickness, i.e. they need to attract a large enough proportion of the potential participants in the market; they have to overcome the congestion that thickness can bring, by making it possible to consider enough alternative transactions to arrive at good ones; and they need to make it safe and sufficiently simple to participate in the market, as opposed to transacting outside of the market, or having to engage in costly and risky strategic behaviour. I will draw on recent examples of market design ranging from labour markets for doctors and new economists, to kidney exchange, and school choice in New York City and Boston.