What is market design anyway?

This article by David Uren has got some international attention. It is about Per Capita and its potential influence on our new Prime Minister. The particular bit of interest is the idea of “market design.”

The idea of “market design” is a key theme for Per Capita. Governments have always had a role in setting the rules of conduct for markets through trade practices. Per Capita argues that with due government guidance, markets can perform a powerful role in delivering human services, such as the jobs network.

This prompted a question from, arguably, the founder of market design as a field in economics — Al Roth — who asked me whether what they mean by ‘market design’ in Australia was the same as what they mean at Harvard. Well, as with all concepts, there is a danger it might be used to justify anything but my impression was that the concepts were supposed to be the same. That is, market design is the careful evaluation and commitment to rules and procedures to ensure that otherwise undirected economic agents choose socially efficient outcomes. In particular, it involves using the hard headed techniques of game theory to propose rules and to back these up with experimental, field or trials to ensure they work as intended in practice.

I have attended Per Capita’s annual conference on two occasions. At the first, I actually talked about Roth’s ideas regarding market design and I think that talk went over well. The second was more wide ranging but about design in the face of financial crises. Sadly, I won’t be able to attend this year.

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