For a many years I have thought about offering a graduate level class in market design. Obligations to this, that and the other have prevented the thought becoming action. Thinking that now might be the time, I decided to set out a syllabus. As always, one first looks to copy another syllabus. There are many graduate courses on market design offered. They descend, either from Alvin Roth’s course or Paul Milgrom’s (there was a version taught by both Milgrom and Roth but I don’t know if it comes before or after their separate versions). So, market design is either matching or auction theory (if you subscribe to Hatfield and Milgrom, matching theory = auction theory! By the way, in a screech against the Matthew effect, I mention Eriksson and Karlander, Discrete Applied Mathematics (1992)). The matching theory variants appear to have reproduced without mutation hewing closely to interns, kidneys and school choice. The auction theory variants incorporate empirics and field experiments.
Is market design no more than matching, auctions and empirical IO? Shouldn’t all that has been scribbled about the regulation of markets also be called market design? However, discussions of disclosure rules, regulation of utilities and insurance providers and so forth are rarely to be found. When discussing the issue with a colleague he suggested that market design be relabeled regulatory micro-economics. A title while more accurate conjures images of dreary bureacrats laboring in musty offices. Market design, as a label, however, has a `Randian’ quality to it. One can imagine John Galt studying it. Apparatchiks study regulatory micro-economics.
Well, when in doubt, return to the source, Roth’s manifesto (The Economist as Engineer………..Econometrica, 2002). He writes:
……….design involves a responsibility for detail; this creates a need to deal with complications. Dealing with complications requires not only careful attention to the institutional details of a particular market, it also requires new tools, to supplement the traditional analytical toolbox of the theorist.
Which reminded me of Macaulay:
……he who has actually to build must bear in mind many things never noticed by D’Alembert and Euclid.
It seems, from Roth, the objective is to strike a balance between the perspective of the parachutist (i.e. theorist) and that of the truffle hunter (domain expert). I cannot yet see how to pull this off in a class. To illustrate, consider the literature on mechanisms for assigning students to schools. There have been a flurry of papers in the last decade on this subject that are `technically sweet’. Some of the findings have changed how students are assigned to schools. However, if one felt that the market for pre-college education was `broken’ is the method by which school districts assign students to schools, the first piece one would pick up to study? More narrowly, is there any evidence that how students are assigned to schools makes a difference to educational outcomes? Thus, were one to follow Roth’s injunction to pay attention to institutional details, one is forced to become an economist who specializes in education. Nothing wrong with that. But it means that a course on market design either focuses on one topic, say, the economics of education. Or, a vehicle to introduce theorists to issues in education, healthcare, labor, financial markets etc. Much like the European bus tours of old where one spent no more than a day in any capital city.
I still wrestle with my syllabus and welcome suggestions.