Sunday, August 16, 2015

The Richmond Fed on market design

 In the magazine of the Federal Reserve Bank of Richmond, in an article called
Economists and the Real World Tim Sablik, interviews Susan Athey and writes about market design.

"Many academic economists have begun collaborating more actively with private firms and public institutions. This practice has become common in the discipline of market design, for example. Robert Wilson of Stanford University helped design auctions for the oil, communications, and power industries. Along with his former student Paul Milgrom of Stanford University and with Preston McAfee, who is now the chief economist at Microsoft, Wilson received the 2014 Golden Goose Award for designing the first spectrum auctions used by the Federal Communications Commission in 1994. Alvin Roth of Stanford University and co-winner of the 2012 Nobel Prize in economics collaborated with public schools in New York City and Boston to design algorithms to improve student placement in preferred schools and with doctors to arrange kidney transplant exchanges between pairs of donors and recipients.

"Market design is a team sport," Roth said in his Nobel acceptance speech. "And it is a team sport in which it is hard to tell who are theorists or practitioners because it blurs those lines."

"Susan Athey of Stanford University says that it is "not an accident" that economists studying market design and industrial organization have collaborated heavily with real-world firms and institutions. "If you're trying to solve a real problem, you need to understand the full set of constraints to propose the best solution," she says. Her role as a consul­tant for Microsoft has influenced her research on Internet markets, such as online advertising.
"I got the impression that many of my peers thought I was selling out," she says. "They couldn't really understand why I was so confident my work with Microsoft was going to come back and improve my research."

"Today, many of the leading empirical studies rely on large datasets collected by firms and government agencies. As a result, more economists seem willing to risk some criticism to obtain access to these data. In a 2014 article in Science magazine, Liran Einav and Jonathan Levin of Stanford University reported that 46 percent of papers published in the American Economic Review in 2014 relied on private or non-public administrative datasets, compared with just 8 percent in 2006.

"I think the profession is starting to normalize the idea of working with a firm to get access to data," says Athey. "Increasingly, people are recognizing that without this private sector data, we're just not going to be able to get a complete picture of trends which could end up being very important to the economy."

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