Academic marketplace: Reactions to the recession

The Globe reports: Despite crunch, some colleges go on hiring spree.

"Amid the gloom of hiring freezes across much of academia, some New England colleges are seizing on the opportunity to scoop up the brightest newly minted PhDs to bolster their faculty ranks and gain ground on their competition.
"A few are recruiting tenure-track faculty in droves even as the majority of colleges, most notably Harvard, have curtailed faculty searches as part of belt-tightening measures. Northeastern is conducting a search for 46 professors in fields ranging from nanotechnology to public health. Tufts is moving forward with 52 faculty searches. Others, including Emerson, Holy Cross, and Amherst, have created teaching positions." (emphasis added:(

Open access journals

To continue yesterday's discussion about the Market for ideas, academic journals present an interesting set of institutions. The Chronicle of Higher Ed reports on the open access journal movement: Physicists Set Plan in Motion to Change Publishing System (and, permanently, here for subscribers). The story concerns SCOAP3 - Sponsoring Consortium for Open Access Publishing in Particle Physics, which seeks to set up a non-profit organization that will fund cooperating journals.

"Here's the pitch. Libraries would stop paying for subscriptions to journals in high-energy physics. Instead, each library or government agency would pay a set amount every year to the new nonprofit group. Each journal publisher would then apply for a portion of that money, submitting a bid spelling out how much it would cost them to review, edit, and publish their articles that year (building in some profit as well). To win a bid, the journals would commit to publishing their articles free online for anyone to see."

"Several factors make high-energy physics an ideal field for this experiment. For one thing, it is a relatively small and tight-knit research area, where almost all major papers appear in just six journals. "

There are clearly obstacles in the path of this plan. But Arxiv, the physics/math working paper archive now hosted at Cornell, seems to have had somewhat more success than the similar effort in Economics at WUSTL, pioneered by Bob Parks, so it will bear watching.

(On the subject of working papers in economics, RePEc and SSRN have filled some of that space in economics, and there are a growing number of open access journals, among them Theoretical Economics.) See also Ted Bergstrom's Journal Pricing Page for a discussion of other proposals for redesigning the market for scientific publishing.

Market for ideas

Joshua Gans and Scott Stern sent me a fascinating market design paper called Is there a market for ideas?, which performs some admirable intellectual arbitrage. They seek to combine modern insights on the unusual properties of intellectual property with some of the recent conclusions from market design.

In particular, they take seriously my proposal here that many market failures have to do with a failure to make the market thick, to deal with congestion, or to make it safe to participate in the marketplace, together with the fact that some transactions are regarded as repugnant.

They argue that some of the properties of ideas themselves make it difficult to organize successful markets for ideas along conventional lines: e.g. "...a key property of ideas - the potential for expropriation - limits the potential for market thickness and lack of congestion identified by Roth."

Among the particular examples they discuss of market designs that try to solve these problems and make markets for ideas are the scientific incentive system ("Open Science"), open source efforts such as Wikipedia, and commercial projects such as Ocean Tomo (which runs auctions for IP assets), and Innocentive (which runs a marketplace in which companies can post Challenges in need of solutions).

Here's the abstract:
"This paper draws on recent work in market design to evaluate the conditions under which a market for ideas or technology (MfTs) will emerge and operate in an efficient way. While most research on MfT have focused primarily on bilateral exchanges, market design principles suggest that any single transaction takes place in the shadow or all other potential transactions. As highlighted by Roth (2007), effective market design must ensure four basic principles: market thickness, lack of congestion, market safety, and avoidance of “repugnance.” Taken together, these conditions ensure that participants in a market have opportunities to trade with a wide range of potential transactors (market thickness), that the market is rapid enough (relative to the speed of transactions) that market participants can feasibly turn down offers in order to seek better matches (lack of congestion), potential market participants have a high incentive to participate in the market and avoid strategic interaction which might undermine allocative efficiency and social welfare (market safety), and that market trade is not undermined by other social values which limit the ability to charge positive prices for a good (avoidance of repugnance). This paper provides a critical examination of these criteria for MfT. Our analysis suggests that microeconomic, strategic, and institutional factors likely inhibit the allocative efficiency of MfT in most circumstances. For example, Arrow’s disclosure problem suggests that the value of a given idea to any one buyer may be decreasing in the number of other potential buyers who have been able to evaluate the idea (due to information leakages in the valuation process). As a result, a key property of ideas - the potential for expropriation - limits the potential for market thickness and lack of congestion identified by Roth. At the same time, key institutional developments such as the development of formalized IP exchanges and increased attention on how to design the patent system to facilitate technology transfer suggest that effective market design may be possible for some innovation markets. Perhaps most intriguingly, our analysis suggests that markets for ideas are beset by the “repugnance” problem: from the perspective of market design, Open Science is an institution that places normative value on “free” disclosure and so undermines the ability of ideas producers to earn market-based returns for producing even very valuable “pure” knowledge. "

Market for stem cell researchers

Not all stem cell researchers are celebrating the Obama reversal of the Bush ban: Canada's Globe and Mail headlines a story As U.S. emerges from dark age, Canada's scientific edge fades .

"...the United States Friday became the first country in the world to approve a clinical trial of embryonic stem cells in human patients.
But in Canada's research community, Mr. Obama's plans have sparked anxiety that if this country fails to keep pace, it will have a tougher time recruiting smart people and convincing talent not to flock south. In short, Canada could lose its competitive edge to the Obama advantage."

Market for art

One of the unusual things about the art market is that the "velocity" of art that becomes acknowledged as important, i.e. the rate at which it changes hands, is low. This is particularly so for art that is acquired by museums; it is often much harder for museums to sell art ("deaccession" it) than to buy it; many people think that museums should not sell art, particularly when it is acquired by donation. (Tax laws cause a lot of art to be donated to museums, as does the desire to maintain the integrity of particular collections.) All of this is on display following the decision of Brandeis University to close its art museum and sell all of its art: Ailing Brandeis will shut museum, sell treasured art. The university needs both to cut its budget and replenish its endowment, but the decision to do it this way has aroused at least a little repugnance. Some quotes from the Globe article: "The move shocked local arts leaders and drew harsh criticism from Rose supporters and the Association of College and University Museums and Galleries. " "While museums regularly deaccession individual pieces, the wholesale sell-off of a collection of the Rose's stature is unprecedented. Codes of practice common among museums stress that art should not be sold to cover operating expenses." ""I'm in shock," said Mark Bessire, the recently named director of the Portland Museum Of Art. "This is definitely not the time to be selling paintings, anyway. The market is dropping. I'm just kind of sitting here sweating because I can't imagine Brandeis would take that step."" ... ""This art was never given to the museum for those purposes," he said. "It should be a last resort. I can't understand how Brandeis is in such dire straits." "There's a history of the Rose, a beautiful history in the annals of contemporary art that is not understood by the president or any of the board of trustees," said Lee. "What they’re doing is a travesty.""

Taxing a repugnant transaction?

Nevada's legal brothels are asking to be taxed by the state, as a hedge against a change in sentiment that might make prostitution illegal once more in Nevada, as it is in other states: Brothels Ask to Be Taxed, but Official Sees a Catch

"The industry’s lobbyist, George Flint, director of the Nevada Brothel Association, has been approaching the Legislature’s leadership for months about creating an entertainment tax that would require the state’s 25 legal brothels to give the state some money on a per-transaction basis. ..."
"Nevada is the only state where prostitution is legal, but by state law it also is restricted to counties with fewer than 400,000 residents. That outlaws it in two counties, Clark, which contains Las Vegas, and Washoe, which contains Reno. There are about 225 women licensed by the state as prostitutes; no county allows brothels to have men who sell sexual services." (emphasis added; I guess some repugnancies are stronger than others)
"Still, since 1971, when prostitution was legalized, Nevada has added more than two million residents and become significantly more socially conservative. The state has also lost much of its frontier mentality, so Mr. Flint acknowledges that the tax effort is “something of an insurance policy” against the Legislature’s deciding one day to do away with the industry.
“Anytime you’re going to take tax money, the state’s not going to view you as a relic of a past time and put you out of business,” explained Mr. Flint, who said he was gaining traction for a brothel tax in 2003 until he made the faux pas of joking to a reporter that he would commit to putting the governor’s portrait in every prostitute’s lair along with a note reading, “Don’t forget the governor’s share.” "

Market for processed food

The task of tracking down a salmonella outbreak having to do with peanuts casts some light on just how many suppliers are involved in the production of some of the food we eat. List of Tainted Peanut Butter Items Points to Complexity of Food Production

Investigators have now focused on products from a particular manufacturer:
"The plant also produced peanut paste, a more concentrated product used in candy, crackers and many other kinds of foods. Tracking how the paste travels through the food supply can be challenging, because several companies can be involved in making the final food. For example, one manufacturer might coat the paste in chocolate and make a peanut butter cup, which is then sold to another company that mixes it into ice cream that may or may not also contain peanut butter. A grocery chain might buy that ice cream and sell it under a private label."

In the meantime, the Girl Scouts have issued a statement that their peanut butter cookies are safe.

TARP auction: Bank of England version

My hotel in Maastricht is housed in an old (renovated) church, and it now has excellent internet connections, so I can blog a bit more than I expected.

Paul Klemperer has written a paper on auction design for England's version of the Troubled Asset Recovery Program. It is called
A New Auction for Substitutes: Central Bank Liquidity Auctions, the U.S. TARP, and Variable Product-Mix Auctions.

It describes a sealed bid auction, required because of the speed and interdependence of markets for financial products:
"a multi-stage auction was ruled out because bidders who had entered the highest bids early on might change their minds about wanting to be winners before the auction closed, and because the financial markets might themselves be influenced by the evolution of the auction, which magnifies the difficulties of bidding and invites manipulation."

Maastricht conference on Matching, Coalitions, Networks and Behavior

I will likely not blog again until the middle of next week, as I'm travelling.

On Friday and Saturday I will be participating in the 2009 Coalition Theory Network (CTN) Workshop, on Matching, Coalitions, Networks and Behavior. Here is the program. (I understand that Matt Jackson (one of the keynote speakers) will also be giving a tutorial on network models in economics, today.)

I'll be presenting a talk on Kidney Exchange (at the very end of the conference), and I'll be a discussant on another one:
Feasibility Constraints and Protective Behavior in Efficient Kidney Exchange by Antonio Nicolo and Carmelo Rodriguez-Alvarez.

There will be a number of papers presented at the conference closely related to topics I've explored on this blog, including (for example) Breaking ties in school choice: Specialized Schools and Walk-Zones, by Lars Ehlers and Alexander Westkamp.

That paper particularly caught my eye because, right after the Maastricht conference, I'll go to Brussels to participate in a conference on school choice. Scho0l choice is a controversial political topic right now in Belgium, about which I hope to learn more.

Contract Design: Rights of First Refusal

Brit Grosskopf and I have just published a paper on an interesting variant of a familiar contract. It's called: "If you are offered the Right of First Refusal, Should you accept? An Investigation of Contract Design," Games and Economic Behavior, Special Issue in Honor of Martin Shubik, 65 (January), 2009, 176–204.

It came about when our attention was drawn to the unusual right of first refusal that NBC had been given by Paramount Studios when it came time to renew the broadcasting agreement for the tv show Frasier, in January 2001.

Here's the Abstract of the paper:

"Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price).
We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this “right” of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design."

Here's an interview I gave on the subject: When Rights of First Refusal Are a Bad Deal

Incidentally, in case you think contract design falls outside the range of "market design," I agree that we haven't hit on the unconstrained optimum terminology for our new field. I tried to spark the use of the term "design economics" in a 2002 manifesto, which might have more naturally included all the things that economists can help design (e.g. marketplaces, contracts, organizations, laws, treaties...). But languages are like economies (and both are like oceans to the extent that you can't hold back the tide), so I'm cheerfully resigned to having all sorts of economic design included under the heading of market design. I guess we're just taking a very broad view of what constitutes a market...:)

Market designer in chief

President Obama's inaugural address touched on many themes, and spoke to many people. Here's what he had to say on market design:

"Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control -- and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart -- not out of charity, but because it is the surest route to our common good."

Market for inauguration tickets, continued

Reports are that Last-Minute Tickets Are Scarce, as scalpers have relatively few tickets to sell. Many people with tickets to Obama's swearing in are apparently planning to attend.

"Senator Dianne Feinstein of California, who is chairman of the Joint Congressional Committee on Inaugural Ceremonies, has been trying to criminalize the scalping of Inaugural tickets. So far, only the Senate has passed her bill, which would make it a misdemeanor to sell or attempt to sell tickets to the swearing-in ceremony, punishable by up to $100,000 and up to a year in prison. But the bill isn’t going anywhere, unless the House suddenly decides to make it a priority in the next few hours.
Some places like eBay and its subsidiaries banned the sale of Inaugural tickets. But that hasn’t stopped other private ticket agencies, which are doing a fairly brisk business in tickets for other inaugural events, but not the swearing-in ceremony."

Market for (seventh grade) basketball players

Got game in 7th grade? NCAA says you're a prospect

It looks like the NCAA plans to fight unraveling with unraveling:

"Giving in to the young-and-younger movement in college basketball recruiting, the NCAA has decreed that seventh-graders are now officially classified as prospects.
The organization voted Thursday to change the definition of a prospect from ninth grade to seventh grade — for men's basketball only — to nip a trend in which some college coaches were working at private, elite camps and clinics for seventh- and eighth-graders. The NCAA couldn't regulate those camps because those youngsters fell below the current cutoff."

HT Steve Leider

Market for human breast milk

The New Yorker reports on mother's milk: Baby Food. It turns out that this is a repugnant market: "Can a human-milk bank pay a woman for her milk? (Milk banks provide hospitals with pasteurized human milk.) No, because doing so would violate the ethical standards of the Human Milk Banking Association of North America." Long before breast pumps, mothers who couldn't or didn't wish to breast feed hired other lactating women as"wet nurses," but it turns out that this practice, while ancient, has also been repugnant in some times and places: "... contracts for wet nurses have been found on scrolls in Babylonia." ... "Mary Wollstonecraft, in her “Vindication of the Rights of Woman” (1792), scoffed that a mother who “neither suckles nor educates her children, scarcely deserves the name of a wife, and has no right to that of a citizen.” The following year, the French National Convention ruled that women who employed wet nurses could not apply for state aid; not long afterward, Prussia made breast-feeding a legal requirement. " The article also comments on fashion and socioeconomic class: "By the nineteen-tens, a study of a thousand Boston women reported that ninety per cent of the poor mothers breast-fed, while only seventeen per cent of the wealthy mothers did. (Just about the opposite of the situation today.)"... " (A brief history of food: when the rich eat white bread and buy formula, the poor eat brown bread and breast-feed; then they trade places.)"

Property rights and real estate: Squatting in Britain

Markets allocate rights, but laws determine what those rights entail. Britain's real estate laws are unusual in giving owners only limited rights to their property when it is unoccupied. The Washington Post reports: Recession Revives Britain's Squatter Movement

"Squatting -- taking up residence in a vacant building -- has been a tradition in Britain since at least the 14th century, as well as a barometer of the times. It boomed after each of the 20th century's two world wars, when returning soldiers needed places to live, then picked up steam again in the radical 1960s.
Now, despite local governments' efforts to discourage it, squatting appears to be on the rise once more as a deep recession hits the country.
In Britain, trespassing is a civil offense, not a criminal one. Provided the squatters do not break a window or door to enter or otherwise damage the property, police are largely powerless to remove them.
Landlords must petition a court for an eviction order, and they can be prosecuted if they attempt to remove the intruders by force. " ...

""The owners are upset and distressed about this. They can't understand how the squatters can be permitted to break into their house and live there," said Andrew Jeffrey, a lawyer who represents the owners of the Mayfair house. "In nine out of 10 countries around the globe, this would not be tolerated, and the police would remove them immediately."
Nic Madge, a circuit court judge in London and a specialist in property law, said proposals in the 1970s to criminalize squatting were defeated in the face of "considerable political opposition."
"The standard British sign, 'Trespassers will be prosecuted,' is generally a legal fiction," Madge said. "

"Ron Bailey, an activist who started Britain's modern squatting movement in 1968 and has written books about squatting, said Britons have a history of sympathy for the practice that goes back hundreds of years. "We look at it as a social good," he said. "If it's a house left empty for a long time, I don't think people see anything wrong with it."

Market for matchmakers: sorting by price

Dating and matchmaking services vary widely on a number of dimensions, one of which is price. Below I'll talk about services whose prices vary from zero to an initial fee of $20,000. One question is how much if anything does that already tell you about who might use which services?

Penny-Pinchers Might Unite at Free Dating Site
"Match.com, which is owned by Internet company IAC/InterActiveCorp and also runs dating site Chemistry.com, was set to announce Thursday the launch of DownToEarth.com. ...DownToEarth.com joins other free dating sites like Plentyoffish.com and OkCupid.com, and expects to bring in revenue from ads. It is geared toward Web dating newcomers and lets users put up post-rendezvous ratings regarding the truthfulness of others' pictures and profiles."

Online Dating Putting You Off? Try a Matchmaker
"Matchmakers prescreen potential matches, focusing on long-term compatibility rather than “short-term chemistry,” Ms. Clampitt said.
While online sites allow unlimited fantasizing, matchmakers encourage clients to take their heads out of the clouds. “Sometimes we will get a guy who is a good-looking man, but no Brad Pitt, and he wants a thin model,” said Shoshanna Rikon, the owner of Shoshanna’s Matches, a Yenta-style matchmaking service in Manhattan that includes an in-person interview and a Web presence, and charges about $1,500 for eight dates. “We try to be more realistic with who we set him up with.""

The New Arranged Marriage
"Janis Spindel Serious Matchmaking Incorporated's fees begin -- begin! -- at $20,000 for an initiation fee, plus $1,000 for a one-year membership that includes 12 dates. That also includes a background check and a home visit, during which Janis spends time with the client, to get a sense of him and verify that he is who he says he is (i.e., rich or very rich). Her image consultant also comes to inspect his wardrobe and, if necessary, make plans to revamp his look. Janis has many clients outside the New York area (in Tampa, Miami, Los Angeles, Toronto, Las Vegas). An out-of-town client must fly Janis and an assistant first class and put them up in a hotel for the home visit. Additionally, a marriage bonus is expected -- sometimes it's a car or extravagant jewelry; other times it's cash. She has received gifts in the $75,000-to-$250,000 range. "

This latter service primarily charges fees to men, and actively recruits attractive women to match them to. This reminds me of a 1993 paper by Mark Bagnoli and Ted Bergstrom called "Courtship as a Waiting Game" which considers why husbands are often older than wives. In their model, people live for two periods. In period 1, men and women are each endowed with a "quality" between 0 and 1, and a woman's quality is common knowledge at period 1, but, although men know their own quality at period 1, it only becomes common knowledge at period 2. So, in their model, the highest quality men wait until period 2, and marry the highest quality women. I guess that, in this model, the $20,000 above would be a signal of male quality... :)

Of course, the value of a match could be a subject of dispute; e.g. here's an 1885 report from the NY Times about a matchmaker suing to receive his full fee after a marriage was arranged but called off. Needless to say, matrimony need not be the only object of matchmaking; Daniel Hamermesh has a Freakonomics post describing an internet site "Ashley Madison, which matches up married women and men who wish to have a quick fling. " (I couldn't figure out their fee structure from the easy to access parts of their web page, but they do offer a $249 refund under their "Affair Guarantee Program" if you fail to have one...)

Heathrow airport

Heathrow airport is in the process of expanding by adding an additional runway, a process that has run into lots of opposition, the Times reports: Heathrow gets third runway in £9bn deal . The Times further reports that Greenpeace is planning a delaying action: Greenpeace buys Heathrow land earmarked for airport's third runway.

The purchase of land in the way of the runway is only a delaying action, because the government plans to require the sale of the land, by eminent domain. But Greenpeace is hoping that the legal process is congested, and can be made to run very slowly, which might delay the process long enough that it could be revisited after the next election:

"The group also plans to divide the field into thousands of tiny plots, each with a separate owner. BAA, the airport’s owner, would be forced to negotiate with each owner, lengthening the compulsory purchase process. "

Marriage market in Saudi Arabia: age of marriage

Many markets unravel, that is, transactions tend to become earlier and earlier. One example is marriage markets, in which betrothals can sometimes be very early indeed, particularly in polygenous cultures. The NY Times reports that Saudi Arabia's most senior cleric was quoted Wednesday as saying it is permissible for 10-year-old girls to marry .

"Al Sheikh's comments come at a time when Saudi human rights groups have been pushing the government to put an end to marriages involving the very young and to define a minimum age for marriage. ...
"On Sunday, the government-run Human Rights Commission condemned marriages of minor girls, saying such marriages are an ''inhumane violation'' and rob children of their rights.
The commission's statement followed a ruling by a court in Oneiza in central Saudi Arabia last month that dismissed a divorce petition by the mother of an eight-year-old girl whose father married her off to a man in his 50s....
"Activists say the girls are given away in return for hefty dowries or as a result of long-standing custom in which a father promises his infant daughters and sons to cousins out of a belief that marriage will protect them from illicit relationships."

Rental market for textbooks

From Peter Klein at Organizations and Markets: Students: Consider Renting, not Buying, Your Books

"Chegg is the Netflix of college textbooks. Get your book in the mail, along with a prepaid return address label, don’t write in it too much, and send it back once the semester is over. I took a quick look and the savings appear to be substantial for brand-new books, modest otherwise (because there are robust secondary markets for used textbooks). The newest edition of a book I assigned last semester is $127 new from Amazon, $72 for a one-semester rental from Chegg."

HT Steve Leider

Class notes on Market Design

Fuhito Kojima is teaching a Matching and Market Design class at Yale, and he'll post his lectures as they develop.

On my game theory and market design web page I have a list of such classes (below): if I've missed yours, please let me know.

Class notes and materials:
Susan Athey teaches an undergrad class on market design at Harvard: here is her syllabus.
Peter Bossaerts has a course called Designing Market-Based Solutions to Allocation and Communication Problems at Ecole Polytechnique Federale de Lausanne.
Peter Cramton teaches a market design class at Maryland.
Francoise Forges coordinates a program on Du calcul economique a l' economic design at Universite Paris-Dauphine
Fuhito Kojima is teaching a Matching and Market Design class at Yale.
Kate Larson has a course on Electronic Market Design at Waterloo.
Noam Nisan teaches a class called Foundations of Electronic Commerce.
David Parkes has a class on Computational Mechanism Design
Tuomas Sandholm teaches Foundations of Electronic Marketplaces at CMU
Leigh Tesfatsion maintains pages on Electricity restructuring and market design.
Bob Wilson has posted some of his class materials from his market design class at Stanford.
(And here's another link to my market design class at Harvard.)

Thomas Kittsteiner and Axel Ockenfels have a review paper: Market Design: A Selective Review. Zeitschrift für Betriebswirtschaft, Special Issue 5 (2006), 121-143.