Engineering Markets (?)

|Peter Boettke|

"Market Design is economic engineering and the science that supports it." Al Roth

There is a lot to think about, and say, about all this from a Hayekian perspective.  Indeed the Hayekian perspective explicitly rejects the engineering mentality in public policy, but it also explicitly endorses the good gardener metaphor for the policy maker.  The right rules can cultivate (not design nor creat ex nihilo) a peaceful and prosperous order.  As Roth says in his talk, game theory taught us how important the rules of the game we are playing are for the way the game is played.  So when Roth is speaking of market design, is he talking about improving rules to cultivate better economic performance, or designing markets explicitly to engineer particular outputs? And finally, what does Roth's take on engineering market design say about the older literature on mechanism design theory as an answer to the Mises-Hayek challenge to socialism based on calculation and dispersed knowledge?

Comments

[Michael Giberson]

I've always seen market design as "improving rules to cultivate better economic performance."

Clearly, today's market design economics is a descendent of the older mechanism design theory (i.e. Hurwicz etc.) that was in some sense intended to "solve" Mises/Hayek calculation problems. I'm not sure I know just what Roth would say, but I see his ambitions as more applied/micro/practical in scope. So, at least as I see it, market design today is oriented at rules that help markets work better given that relevant knowledge is distributed, often tacit, and often only revealed or created in the context of its use.

In the presentation Roth said he liked the conceptualization of "marketplace design," and I think the metaphor is instructive. Think of how a retailer arranges his goods, cash registers, entry/exit and traffic patterns, and then rules on returns, or use or credit cards, and such things. In this case there is a designer and a unified goal to maximize profits for the business.

A stock exchange faces similar design issues even though the market is virtual/distributed and the buyers and sellers, exchange managers, and exchange board members have a wide variety of goals. The stock exchange market designer isn't trying to design allocations, but rather to design a more effective allocator.

[Michael Webster]

1. The distinction between engineer versus gardener is not helpful once a Monsanto is created.

2. Roth is mostly designing matching markets. Exchanges between 2 or more parties which depend on more than price signals.