Market Design by Nikhil Agarwal & Eric Budish (forthcoming in the Handbook of Industrial Organization)

 Here's an NBER working paper that will appear in the Handbook of Industrial Organization:

Market Design by Nikhil Agarwal & Eric Budish

NBER WORKING PAPER 29367,  DOI 10.3386/w29367,  October 2021

Abstract: "This Handbook chapter seeks to introduce students and researchers of industrial organization (IO) to the field of market design. We emphasize two important points of connection between the IO and market design fields: a focus on market failures—both understanding sources of market failure and analyzing how to fix them—and an appreciation of institutional detail.

"Section II reviews theory, focusing on introducing the theory of matching and assignment mechanisms to a broad audience. It introduces a novel “taxonomy” of market design problems, covers the key mechanisms and their properties, and emphasizes several points of connection to traditional economic theory involving prices and competitive equilibrium.

"Section III reviews structural empirical methods that build on this theory. We describe how to estimate a workhorse random utility model under various data environments, ranging from data on reported preference data such as rank-order lists to data only on observed matches. These methods enable a quantification of trade-offs in designing markets and the effects of new market designs.

"Section IV discusses a wide variety of applications. We organize this discussion into three broad aims of market design research: (i) diagnosing market failures; (ii) evaluating and comparing various market designs; (iii) proposing new, improved designs. A point of emphasis is that theoretical and empirical analysis have been highly complementary in this research"

Here's the first paragraph:

"Textbook models envision markets as abstract institutions that clear supply and demand. Real markets have specific designs and market clearing rules. These features affect market participants and their allocations in various ways – they determine the actions an agent can take, the incentives for taking those actions, the information environment, the interactions between agents’ actions, and, ultimately, the final allocation. Well-designed markets have rules that coordinate and incentivize behavior in ways that lead to desirable outcomes. But it is not a given that all markets have good design. The Market Design field studies these  rules in order to understand their implications, to identify potential market failures, and to remedy them by designing better institutions."