Update on scalping

My old friend the sports economist Larry DeBrock writes to update my recent post on Scalping and intermediation:

"...the Cubs won a big lawsuit in 2003 after they set up a wholly separate firm “Premium Ticket Services” and transferred GREAT seats to them before opening tickets to the general public. They made some tremendous markups (reported to be 30 times face) on these seats.
Attached is the law review paper about this case.
Jasmin Yang, A Whole Different Ballgame: Ticket Scalping Legislation and Behavioral Economics?, 7 VAND. J. ENT. L. & PRAC. 111, 111 (2004)."

I can't resist adding that, long, long before Larry became Dean of the College of Business at the University of Illinois in Urbana Champaign (so long ago that it was still called the College of Commerce, and the Rand Journal was still the Bell Journal), he coauthored what I always hoped would become the definitive paper on strikes in major league baseball.

Market for book reviews: Amazon version

Here's a nice description of how Amazon's reviews are ordered: at the top are the ones rated most useful, both positive and negative: The Magic Behind Amazon's 2.7 Billion Dollar Question

"Even the behavior of clicking Yes or No is elegant. Amazon tracks who rates each review as helpful, allowing each person to only vote once. This prevents "gaming the system" by voting for a friend's (or your own) review multiple times. Clicking either Yes or No pops up a quick message, saying the vote will take effect within 24 hours. (This delay also reduces gaming.)
Amazon quietly bumps the three most helpful reviews to the top. It tries to balance positive and negative reviews, so shoppers get a balanced perspective. An interesting side effect is how these selected reviews get more votes. If they are controversial (in that not everyone agrees they were helpful), their ratio goes down, allowing the most helpful reviews to bubble up past them."

And here is a discussion of how online recommendation systems might decrease the total diversity of products: Online Monoculture and the End of the Niche (HT to MR)

Algorithmic Game Theory blog

Noam Nisan the eminent Hebrew University computer scientist, has a new blog, called Algorithmic Game Theory.

For economists who may not yet know, Nisan is one of the pioneers on the interface of computer science, game theory, and economics. He's also one of the editors of the book Algorithmic Game Theory, and the advisor of a host of students and postdocs whose work we are going to need to be familiar with as the connections between CS and Econ grow closer.

Here is Nisan's blogroll of related blogs:
Adventures in computation
Combinatorics and more
Computational Complexity
Godel’s lost letter and P=NP
In theory
Market design
Michael Nielsen
My biased coin
My Slice of Pizza
Paul Goldberg
Shtetl optimized
TCS blog aggregator
Terry Tao
WebDiarios de Motocicleta,

and here are some links from my web page on Game Theory and Computer Science.

''Not everything that is immoral has to be illegal'

The quotation in the title of this post is from Romanian Justice Ministry legal expert Valerian Cioclei, and it comes from the NY Times story Romania Weighs Decriminalizing Consensual Incest .

"Three European Union nations -- France, Spain and Portugal -- do not prosecute consenting adults for incest, and Romania is considering following suit.
...
"Incest is defined as sexual intercourse between people too closely related to marry legally. In the United States, all 50 states and the District of Columbia prohibit even consensual incest, although a few states impose no criminal penalties for it..."

Incest is surely one of the prototypical repugnant transactions, namely one that people don't like to have others engage in. Such repugnance is often reflected in law, but by no means always. (E.g. there is no law against going to the front of a long line at the supermarket checkout counter and asking a person near the front to sell you their spot, i.e. to move to the back of the line and let you into their place in return for a cash payment. But here's a story of an economist , Oz Brownlee, who, after trying to do that, decided that the best course of action was to leave the store without buying anything.)

A famous article by Jonathan Haidt (Haidt, J. (2001). The emotional dog and its rational tail: A social intuitionist approach to moral judgment. Psychological Review. 108, 814-834 ) begins with an example of consensual incest.
"Julie and Mark are brother and sister. They are traveling together in France on summer vacation from college. One night they are staying alone in a cabin near the beach. They decide that it would be interesting and fun if they tried making love. At very least it would be a new experience for each of them. Julie was already taking birth control pills, but Mark uses a condom too, just to be safe. They both enjoy making love, but they decide not to do it again. They keep that night as a special secret, which makes
them feel even closer to each other.
What do you think about that, was it OK for them to make love?

"Most people who hear the above story immediately say that it was wrong for the siblings to make love, and they then set about searching for reasons (Haidt, Bjorklund, & Murphy, 2000). They point out the dangers of inbreeding, only to remember that Julie and Mark used two forms of birth control. They argue that Julie and Mark will be hurt, perhaps emotionally, even though the story makes it clear that no harm befell them. Eventually,
many people say something like “I don’t know, I can’t explain it, I just know it’s wrong.” But what model of moral judgment allows a person to know that something was wrong, without knowing why?"

Haidt (and colleagues, particularly Paul Rozin) have studied the emotion of disgust, and think that a lot of moral judgements may be mediated by the disgust reaction (whose initial evolutionary significance is presumably to prevent us from eating spoiled food, etc.). This makes a lot of sense for incest (because evolution should help us avoid inbreeding, with the excessive concentration of recessive genes in offspring).

I suspect that many of the more clearly economic transactions that are or have been regarded as repugnant are less closely tied to hard-wired disgust. That is not to say that, as people who are culturally acclimated to find some kind of transaction repugnant (e.g. charging interest on loans was repugnant for centuries in Europe), we may not be able to recruit our disgust reaction to make sense of things we disapprove of. Just as not every repugnant transaction is against the law, they may not all originate with (or even activate in a secondary manner) feelings of disgust. (See my other posts on repugnant transactions for a variety of examples...)

Update: see an article on disgust and moral judgement in the March 2009 issue of The Jury Expert (a very task oriented journal focused on picking and persuading jurors): Grime and Punishment: How Disgust Influences Moral, Social and Legal judgments

School choice in Belgium: update

In an earlier post, I discussed some of the problems in the school choice systems in Belgium, and noted that Estelle Cantillon had organized a conference on the subject in Brussels in January.

Estelle's conference has had some effect. She writes "The parliament of the French-speaking Community will adopt tomorrow a new school enrollment decree. The article says that it will be centralized (coordination among networks), that parents will be asked for their preferences, ... The details will be worked out after the elections in June. " Inscriptions: un nouveau décret, trois mesures

Economics Job Market “Scramble” for New Ph.D.s

To candidates on the economics job market (and to graduate placement directors): the scramble opens for registration tomorrow (March 24), and is open one week only (registration closes on March 30). There's no special benefit to registering on the very first day, but if you haven't registered by the last day you can't participate, so, if you're planning to register, don't wait til the last day (behavioral economist's advice).

The back story on this is that new Ph.D.s in economics have been busy since the first days of the year interviewing for jobs. The first stage of the interviewing process was at the annual professional meetings in early January. For jobs at universities, the latter stage of the interviewing process involves "flyouts," campus visits at which the candidate meets the faculty, and gives a research seminar or teaching demonstration, or sometimes both. While many jobs have been filled by now, there are both candidates and jobs still available. Many of the still unmatched candidates and still unfilled jobs are already engaged with each other in the courtship process, and are slowly working towards offers and acceptances. However there are also people and jobs still available who failed to connect with each other in the earlier parts of the market.

To make it easier for people and jobs to connect at this late stage of the market, the American Economic Association's Ad Hoc Committee on the Job Market* started a simple "scramble" in the 2005-06 academic year. It is a pair of web pages on which candidates and jobs can list their continued availability. See the Scramble Guide for details. This year's scramble opens tomorrow, March 24, and stays open for registration for a week. After that it becomes visible to registered participants on both sides of the market.

It doesn't attempt to do any more than make the two sides of the market more visible to each other, and after two weeks it closes. Once registration closes on March 30, the site is passive, it isn't updated. It is up to candidates and jobs to contact each other.

There is one new feature this year, which I'm slightly ambivalent about. Some departments that entered the scramble last year complained that they were overwhelmed by the large number of new applications they received. Faced with the threat of employers declining to participate in the scramble, the Committee decided to allow employers to register but withhold their information from job candidates. So this year there will be some "invisible" employers registered for the scramble, who will be able to see the candidates and contact those they wish, but whose own contact information will not be available.

So far, the scramble hasn't been a giant part of the market; most jobs have (fortunately) been arranged earlier, through the regular process. Last year, in the 2008 scramble (following the 2007-08 job market) 100 employers and 361 applicants registered. We conducted a followup survey of employers and received 30 replies. Of those employers who responded, 22 contacted people in the scramble, 19 interviewed someone from the scramble, and 10 hired someone from the scramble (one hired two people from the scramble) . 17 of the 22 respondents who contacted applicants in the scramble were academic economics departments, as were 8 of the 10 respondents who reported hiring through the scramble.

Every economist is important. Good luck to those still on the job market.

To summarize. 2009 Job Market Scramble Important Dates:
March 24: Registration Opens
March 30: Registration Closes
April 1 : Scramble Website will open for viewing by registered participants only
April 11: Scramble Viewing will close

*American Economic Association Ad Hoc Committee on the Job Market
Alvin E. Roth (chair), John Cawley, Peter Coles, Phillip Levine, Muriel Niederle, John Siegfried

The Harvard of Auctioneering

I was struck by this line in a story in the NY Times:
"The auction itself began at 10:15 a.m. when Rob Nord, a professor of bid calling at the Missouri Auction School (“The Harvard of Auctioneering”), started with Lot 1: four diamonds varying in weight from 1.1 to 1.4 carats."

Here is the story: Selling the Diamonds the Government Doesn’t Need , which is about how the US government sells off items seized in the course of federal crimes, and, lately, acquired by the government in other ways.
"Mr. Levin, who, on average, takes a 10 percent cut from his auctions, has been very busy of late. In the last few years alone, he has sold for the government smuggled horses in Arizona, stolen cab medallions in Boston, 54,000 pounds of smoked Chinese scallops, a shipping container of blue jeans, illegally marketed Freon and a million packs of untaxed cigarettes.
"Tapping what could be a growing market, Mr. Levin recently secured a contract with the Federal Deposit Insurance Corporation to auction furniture, fixtures and equipment seized from failed banks around the country."

And here is the website of the Missouri Auction School, which does indeed mention that it is called the "Harvard of Auctioneering." Here are some sentences from the description of their course (I have always thought that the different chants used by auctioneers of different products in different places would be worth study):
"The classroom portion includes small group sessions learning the auction chant from leading auctioneers from around the country. It also includes those top auctioneers sharing business insights and secrets with the entire class."

Market for childrens' books

Bestsellers in any category are what make publishing profitable. But childrens' books must be very special, because a bestseller can have high sales for a long time, as new generations of the target audience are born. I've always thought that this must be especially true for those books made of thick cardboard, suitable for chewing on as well as reading, since each new reader needs a new copy (chewing cuts down on the used book/hand me down market). But I hadn't guessed just how big the revenue stream is.

Both of my children enjoyed "The Very Hungry Caterpillar," which celebrates its 40th birthday this week: Happy birthday, hungry caterpillar!

" 'The Very Hungry Caterpillar,' who eats his way through the book, leaving a trail of holes behind, has sold 29 million copies and has licensing deals, Newsweek reports, of $50 million annually. With the money, Carle established the Eric Carle Museum of Picture Book Art in Amherst, Mass.; its exhibits have celebrated works by Dorothy Kunhardt ("Pat the Bunny"), Arnold Lobel ("Frog and Toad") and Maurice Sendak ("Where the Wild Things Are"). "

Scalping and intermediation

The resale of tickets for concerts and sporting events, at higher prices than those at which they were initially made available, is often regarded as "scalping," a repugnant transaction that is illegal in some states. (See e.g. Greg Mankiw's post about resales of Jay Leno tickets...)

But the lines are getting less clear, as artists and sporting venues try to make use of the secondary market themselves, to benefit from the higher prices enabled by discriminatory pricing:
Concert Tickets Get Set Aside, Marked Up by Artists, Managers .

"Less than a minute after tickets for last August's Neil Diamond concerts at New York's Madison Square Garden went on sale, more than 100 seats were available for hundreds of dollars more than their normal face value on premium-ticket site TicketExchange.com. The seller? Neil Diamond."

..."Secondary ticket sales are viewed by Ticketmaster, concert promoters and artists as one of the biggest -- yet thorniest -- sources for revenue gains. In 2006, Ticketmaster launched TicketExchange in response to pressure put on its profit margins by secondary-ticket sellers such as StubHub. But in doing so, it opened the company to criticism by ticket brokers, fans and politicians, who accuse the ticketing giant of profiteering and obfuscation.
Ticketmaster is moving to distance itself from some parts of the secondary ticketing market. It is in the process of hiring an investment bank to try to sell another resale service, TicketsNow, according to people familiar with the matter.
Virtually every major concert tour today involves some official tickets that are priced and sold as if they were offered for resale by fans or brokers, but that are set aside by the artists and promoters, according to a number of people involved in the sales."

One of the interesting things about this story is how Ticketmaster and the artists seek to put some distance between themselves and the secondary market. Luke Coffman (who you can try to hire next year), has a paper that seeks to understand this: Intermediation Reduces Punishment .

As part of his investigation into how people view economic transactions, he runs experiments that show that charging a high price through an intermediary may be seen as less blameworthy than charging a high price directly, even if going through an intermediary means that the ultimate price charged is higher than it would have been with a direct sale. And, he finds, this doesn't seem to result from confusion; apparently putting some distance between yourself and an act that may be regarded as blameworthy dilutes the blame, even in the eyes of observers who understand that you are doing it for that reason.

The "middleman" view of scalping gets some support from Trent Reznor of the band Nine Inch Nails (courtesy of Eric Crampton's blog Offsetting Behavior, for which HT to MR).

Luke will be talking about his work on intermediation, and related work on how people perceive the moral content of economic transactions, in our Experimental Economics class today.

Match Day for new doctors

Today is the third Thursday in March, Match Day for young doctors seeking their first job through the National Resident Matching Program (NRMP).

Here is the NRMP press release. Almost 30,000 applicants (11,000 from foreign medical schools) sought the 22,427 first year positions available in this year's match. About 95% of the available positions were filled through the match, the rest are filled in a post-match "scramble." (The organization of the scramble is under discussion, and here's the WSJ's account of it.)

The NY Times covers match day with a story and a picture: A Medical Student’s Rite of Passage . As in many discussions of labor markets, the author finds that many medical students wish they had more control over where they are going. Some of them attribute this loss of control to the match process, while others know something about how the medical market worked before the match. (Among the online comments on the story is this one:
"I wish they did something like this for law students. The job experiences and training available to new lawyers are extremely uneven. Plus it is on the law student to secure that first job on the open market, with no real guarantees of getting hired."

There's a new book by Brian Eule, Match Day: One Day and One Dramatic Year in the Lives of Three New Doctors, that follows three women through the match, one of them now his wife. I haven't seen the book yet, but I talked to him a number of times while he was writing it, and he once gamely sat through a lecture in my Market Design class.

788 couples went through the match this year as couples (some others may go through without identifying themselves that way, and the NY Times story remarks that some were disappointed not to have gotten jobs together). For the technically inclined, here's an account of how the new couples algorithm works to allow couples to express their preferences over pairs of jobs (and of the design process that led to the new match algorithm that's been in use since 1998):
Roth, A. E. and Elliott Peranson, "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, 89, 4, September, 1999, 748-780.

Black market kidney sales in the Phillipines

Last Friday I was part of a panel at Harvard at the National Undergraduate Bioethics Conference , at which a panel consisting of me, Frank Delmonico, and Nir Eyal, and moderated by Dan Brock, was asked to consider the question "Should willing sellers be permitted to sell body parts to willing buyers?".

Among other things, I defended the point that the performance of a potentially regulated legal market can’t be well predicted from the performance of unregulated, illegal markets. Frank largely disagrees with that, and expects that any regulation short of attempting to ban organ markets outright will inevitably deteriorate into the kinds of illegal markets we see in some parts of the developing world. Regardless, it's good to pay attention to the black and grey markets around the world. Here's an account of such a market in the Phillipines: No Turning Back. Some aspects of this market are quite black (the subject of the story is threatened with retribution if he changes his mind once medical tests have been paid for), and some are grey (quite a few medical tests are done, although perhaps not to the standard we would like), and some are not even so grey (the subject of the story is paid, and gets a motor vehicle and a house out of it, and would do it again).

"Lito, 23, a resident of Gumaca, Quezon, who sold one of his kidneys, knew the stakes just got higher when he was told before the transplant procedure that he could not back out anymore. A friend of his decided to pull-out. “They are hunting him down. They want to have him killed." ... "On February 14, 2007, the friend accompanied Lito to a house in Barangay Tikalan, a village in San Juan, Batangas where a man named “Junior” who was referred to by his men as the “manager,” housed other would-be donors.“Junior” is also an organ donor. The following day, Lito and nine others were brought to a private hospital laboratory in front of the National Kidney and Transplant Institute (NKTI) where many people were having their blood samples taken. They also underwent a number of tests. X-rays were also taken. Junior paid for the procedures. " ... "For over a month after the first tests, Lito shuttled back and forth from Batangas to Metro Manila in order to undergo various tests in different hospitals. In each of the trips, he was accompanied by either “Junior” or one of his men. The purpose, he was told, was to look for a match. ... "Back home in Gumaca, Lito found that money has a way of slipping easily between one’s fingers. In his case, it lasted only for six months. Almost half of the amount he got from selling his kidney—about P40,000—went to the payment of debts. With the rest of the money he was able to buy a tricycle and a small dwelling. Months later, however, he had to pawn the tricycle to pay for his daughter’s hospitalization. Lito does not regret going through the operation. “I was in dire straits,” he explained. If he did not go through it, he said, he would not have been able to pay his debts. Besides, he said, he did it for his family’s sake. “I am ready to give up my life, for the sake of my family.” "

Market for information

Mostly we think it is good for information to be freely available, but one place where we often do not is in the adversarial system of trial by jury. The rules of evidence permit judges to decide what evidence is admissable, and what is not. I have served on juries in which we were instructed not to read news accounts of the trial we were part of. Sometimes juries are sequestered, so that they cannot have much contact with the outside world. That has all gotten a little harder to enforce, now that everyone has Google in their pocket: Mistrial by iPhone: Juries’ Web Research Upends Trials .

"Last week, a juror in a big federal drug trial in Florida admitted to the judge that he had been doing research on the case on the Internet, directly violating the judge’s instructions and centuries of legal rules. But when the judge questioned the rest of the jury, he got an even bigger shock.
Eight other jurors had been doing the same thing. The federal judge, William J. Zloch, had no choice but to declare a mistrial, wasting eight weeks of work by federal prosecutors and defense lawyers."

Patents Versus Markets: a Market Design Experiment

The March 16 issue of Science contains a laboratory experiment concerned with a market design question (subscription required): Promoting Intellectual Discovery: Patents Versus Markets by Debrah Meloso, Jernej Copic, and Peter Bossaerts.

(Science is one of those journals with a pre-publication news embargo designed to promote press coverage; here is the corresponding Cal Tech press release (HT to Alex Tabarrok at MR).

While a lot of market design work is prompted by very specific markets, this paper deals with a more abstract question: could a market system without patents do as well as a patent system in encouraging innovation, if innovators could use their private information to make investments that would have unusually high returns?

Here is the abstract:
"Because they provide exclusive property rights, patents are generally considered to be an effective way to promote intellectual discovery. Here, we propose a different compensation scheme, in which everyone holds shares in the components of potential discoveries and can trade those
shares in an anonymous market. In it, incentives to invent are indirect, through changes in share prices. In a series of experiments, we used the knapsack problem (in which participants have to determine the most valuable subset of objects that can fit in a knapsack of fixed volume) as a
typical representation of intellectual discovery problems. We found that our “markets system” performed better than the patent system."

The key experimental treatment is described thus:
"In the markets system, participants were given an equal number of shares in each of the items of the particular KP, as well as cash. They could trade these shares in an anonymous, electronic exchange platform during a preset amount of time (840 s). The allowed time was double that of the prize system to compensate for the fact that subjects needed to perform two tasks: to solve the KP and to trade (to exploit the knowledge they gained from solving the KP). The platform was organized as a continuous double-sided open book (Fig. 1B), like most purely electronic stock markets in the world. The accumulation of orders generated the first transactions after about 100 s. Thereafter, trading remained brisk in virtually all markets (Fig. 1C). After markets closed, each share in an item that was in the optimal solution paid a liquidating dividend of $1; shares corresponding to items not in the optimal solution expired worthless."

The main results:
"The correct solution was found under the markets system whenever this was the case under the prize system. Therefore, if the concern is to design a system that produces the optimal solution, the markets and prize systems are equivalent. In one important respect, however, the markets system outperformed: Significantly more participants reported the correct solution than under the prize system (Fig. 2A). For both systems, the fraction of participants who reported the correct solution declined with problem difficulty (Fig. 2B). The fraction may seem to decline faster for the markets treatment, but the difference in slopes was not significant. An outlier influenced the fits: Nobody ever solved the most difficult problem (difficulty = 6). It was solved in follow-up experiments [ran to check for robustness (11)], but only with the markets system, further corroborating its superiority.
"In the prize system, only the first to find the optimal solution is compensated, which may discourage many from spending effort. In the markets system, everyone could be compensated in principle, which may be sufficient to explain why more participants find the optimal solution. Alternatively, prices may convey information that facilitates problem solving for participants who would never find the optimal knapsack on their own. Figure 3A shows that prices indeed do provide a potential channel of communication: Prices of shares of items that were part of the optimal knapsack (“in” items) tended to be higher than shares of items that were not part of it (“out” items); the mean transaction price of in items was significantly higher than that of out items (P < 0.01)."

HT Joshua Gans of Core Economics

The marketplace for peer reviewed economics

Journals are the clearinghouses of academic economics, providing the proximate demand for the articles that economists supply. In my previous post (Science journals and science journalism) I discussed the fact that economics journals have a much longer delay between submission and publication than journals in science and medicine. Some of this has to do with the reviewing process.

Preston McAfee, a veteran editor, has written a wise and not so funny* article about the editing process, based on his long experience at the AER and, more recently, Economic Inquiry (where he initiated a policy of allowing authors to opt for an accept or reject decision without revision).

I recommend the article, even though it is difficult to summarize. It is not an apologia; he says:
"The way economists operate journals is perhaps the most inefficient operation I encounter on a regular basis."

*He also says "There is a lot of heartbreak in journal editing since most of the job is rejecting papers. If you are looking for amusing anecdotes, subscribe to Readers’ Digest."

Science journals and science journalism

After my recent post The production of news: The NEJM news cycle about the effects of the New England Journal of Medicine's news embargo policy on the production of news stories, I corresponded with two of the young leaders in the new economics of media, Matt Gentzkow and Jesse Shapiro. They pointed out that, aside from increasing the number of stories, an embargo might increase their quality, by preventing a "race to the bottom" in which the shortest, least well reported stories can come out before more carefully researched stories. With an embargo, reporters don't have an incentive to rush to publish, they know they can work on their story up until the embargo expires.

A separate issue was raised in an article Matt pointed me to, one that I had already noticed sharply distinguishes scientific journals like the NEJM and Science, which publish short articles weekly, from journals like the ones economists normally publish in, which publish longer articles, much less frequently, and with much longer delay. In Ingelfinger, Embargoes, and Other Controls on the Dissemination of Science News, Vincent Kiernan explores not only the effect of embargos, but also of the "Ingelfinger rule" (named after a former NEJM editor), which is that NEJM, Science, etc. won't publish an article that has in any substantial way been made available before publication. So, in particular, papers appearing in those journals can't first be posted on the web as working papers.

This is in stark contrast to the way economists work; the usual practice these days for an economist who finishes a paper is to put it up on the web even before it has been submitted for publication. Economics journals function as the archival sources of papers, not as the place they are first distributed. And this predates the internet; economists have communicated via pre-publication working papers at least since I entered the business, after the invention of the printing press, but before the word processor.

Partly this difference has to do with the speed of publication. A paper accepted by Science or the NEJM will likely appear not too many months after it has been submitted, while the process at most economics journals takes well over a year (and two is not so unusual). As a result, the weekly science journals seek to be a combination of science journals and science news sources, in a way that economics journals do not.

The difference between the two was first brought home to me in 1990, when I received a call from the then editor of Science, which turned into a proposal that I write an article for them summarizing work I had done studying various labor markets for new doctors. I had circulated a working paper on that subject in 1989, and at the time of the phone call from Science it was forthcoming in the American Economic Review, in 1991. I told the editor of Science that I would have to check with the AER, but that if I wrote the article, it would state clearly that it was a summary of the longer AER article. He replied that he would like to have the article, provided the short summary in Science came out before the original article in the AER.

I called Orley Ashenfelter, who was then the editor of the AER, and he said something very close to "go ahead and give Science the summary, a five page paper can't scoop a twenty five page paper." His feeling was that as long as the AER had the definitive version, there was no problem. And that is how I came to have two papers on that subject, published out of order, in

Roth, A.E., "New Physicians: A Natural Experiment in Market Organization," Science, 250, 1990, 1524-1528.
and
Roth, A.E., "A Natural Experiment in the Organization of Entry Level Labor Markets: Regional Markets for New Physicians and Surgeons in the U.K.," American Economic Review, Vol. 81, June 1991, 415-440.

(These papers were posted to the web so long ago that they are html versions made from the original text files, rather than pdf versions of the actual publications.)

Personalized advertising

As the world wide web is increasingly accessed by mobile devices (equipped with GPS, and used largely by a single individual) the ability to narrowly target advertisements is increasing: Advertisers Get a Trove of Clues in Smartphones .
"Advertisers will pay high rates for the ability to show, for example, ads for a nearby restaurant to someone leaving a Broadway show, especially when coupled with information about the gender, age, finances and interests of the consumer. "

"Applications that use GPS can offer even more specificity, including Loopt, Yelp, Urbanspoon, Where and almost any iPhone application that shows the pop-up box saying it “would like to use your current location.” Several firms are experimenting with a program called AisleCaster that can offer specials based on a person’s exact location in a supermarket aisle or mall.
Advertising systems can track not only the location of the phone, but also that person’s travel pattern: uptown New York to Nob Hill in San Francisco, for instance."

"For now, there are not enough people using smartphones to make it worthwhile for advertisers to use highly specific criteria. But as more people switch to smartphones, that will happen more frequently."

The article also discusses the privacy issue, and whether customers will be "creeped out" by ads that reveal how specifically they have been targeted. (I wonder if people will find it equally creepy to be targeted by a computer from a big database that no human looks at as by a human being at a dinner time call center...)

Costs of unraveling: elementary school basketball players

One of the costs of "unraveling," in which transactions come to be made increasingly early, is that matches are made on the basis of very noisy information. I've posted earlier about the competition by colleges for basketball players (Market for (seventh grade) basketball players ), and a recent story highlights just how noisy those early signals can be: First Impressions Can Create Unrealistic Expectations for Recruits .

"Amid the clamor to find the next basketball wunderkind, the evaluation of sixth graders remains an uncertain pursuit. Francis, who runs the Hoop Scoop recruiting service, said the process involved much guesswork.
The players can stop improving, stop caring or stop growing." (emphasis added: the source of uncertainty is different in different markets:)

"In January, the N.C.A.A.lowered the school year a basketball player was considered a prospect from ninth grade to seventh grade.
Though the change seemed curious, it closed a loophole that had allowed college coaches to gain a recruiting edge by inviting middle school players to private camps. Those middle school prospects are now protected by the N.C.A.A. the same way as high school recruits.
For now, elementary school students are not included in this new rule. An associate commissioner of the Big East, Joseph D’Antonio, the chairman of the N.C.A.A.’s legislative council, hopes there is no need to change that.
“I think the seventh- and eighth-grade endpoint is a place to begin, because that’s where the problem has been identified,” D’Antonio said. “Whether or not we see bylaws in the future that lower the age even further is going to be driven by what the coaching involvement is.”"

HT Muriel Niederle

The production of news: The NEJM news cycle

My previous post was about the recent kidney exchange innovation by the Alliance for Paired Donation, just reported in today's issue of the New England Journal of Medicine. That NEJM immediately attracted some press, and in this post I consider the role that the NEJM's press embargo policy might play in generating news stories about some of the articles they publish.

The press policy of the NEJM is communicated to authors as follows (emphasis added):
"Your Brief Report will appear in the March 12, 2009 issue of the New England Journal of Medicine (NEJM). This information is confidential. There is a press embargo on the contents of the issue until 5:00 PM ET on Wednesday March 11, 2009. On Friday, March 6, 2009 the content of the March 12, 2009 issue will made available to reporters who have agreed to respect our embargo. "

That is, a week before publication, the NEJM makes the forthcoming issue available to reporters who have agreed not to write about it until a specified time the next week.

To better understand how this kind of policy plays out, I asked a public relations person about the NEJM and their policy, and got the following reply:
"...they have a reputation of being one of the best PR machines there is. Their embargo is one of the toughest on the planet as well; reporters and any others who violate it are dead for the rest of their lives in getting information on future NEJM articles. Anyone in the medical writing community knows and fears this."

At 9 pm on March 11, four hours after the embargo ended, here's what a Google news search for "kidney exchange" looked like (note the link to "all 217" news articles):

Kidney-transplant chain broadens donations
Boston Globe - ‎1 hour ago‎
Dr. Frank Delmonico of Massachusetts General Hospital, one of the architects of the New England Program for Kidney Exchange, disagreed. ...
New Computer Models Successfully Link Donors And Kidney Transplant ... Science Daily (press release)
Living Kidney Donation Chains May Help More Get Transplants U.S. News & World Report
Chain results in 10 kidney swaps among strangers The Associated Press
Pittsburgh Post Gazette
all 217 news articles »

The first of these articles, in the Globe, was written by a reporter who talked to several of the participants, concentrating on those in Boston (which is where the economists on the team all reside, and also where another kidney exchange program, the New England Program for Kidney Exchange was started). The second (in Science Daily) is a press release issued by Boston College (where my economist colleagues Tayfun Sonmez and Utku Unver both teach). Some of the remaining stories have original content, but many are largely if not completely taken from some of the original reporting and press material. (I like the story that ran in the Washington Post, because it has a slideshow that shows off Mike Rees, the innovative--and apparently good looking--surgeon who is the lead author of the NEJM article, and a figure of emerging importance in the national discussion of kidney exchange).

So...I've written a lot of articles that attract little or no press, and certainly not a flood in a few hours. While kidney exchange is undoubtedly a subject with wider popular appeal than, say, the lattice structure of fixed points, I'm guessing that the NEJM's embargo policy plays at least some role (recall the comment that they are one of the best PR machines...). Here are three hypotheses--one psychological and two economic--about why the embargo might matter.

Hypothesis 1 (behavioral/psychological): telling reporters they can't publish before 5PM Wednesday makes them want to write about the story more...

Hypothesis 2. (coordination equilibrium): telling reporters that no one can publish before 5PM Wednesday reassures them that the time they put into the story won't be wasted, they won't be scooped by someone else who finishes their story earlier.

Hypothesis 3. (common value/winner's curse): in the absence of an embargo, a reporter tempted to try to write the first story might be worried that the absence of previous stories means that the subject isn't as interesting as it looks, won't be picked by editors, etc. To put it another way, whoever writes the first story might be (like the high bidder in a common value auction) the person who thought it was the most interesting, and the fact that no one else agreed how interesting it was might mean that he has overestimated its value. But, when there is an embargo, this kind of negative selection can't be going on; no one else could have published earlier, so the absence of earlier stories isn't a negative signal.

(Blogs, incidentally, seem to work on a different schedule; here are the March 12 takes by Steve Levitt and by Tim Harford on the original story...)

Update: television works on a different schedule still: Mike Rees was interviewed later that evening (March 12) on the CBS Evening News: A Transplant Surgeon Matches 10 Donors With Recipients In The Longest Chain In History

Advances in kidney exchange, in the New England Journal of Medicine

One of the satisfying things about the ongoing collaboration between economists and kidney surgeons is that sometimes the results are very concrete. Today's New England Journal of Medicine reports on such a case in the article: Rees, Michael A., Jonathan E. Kopke, Ronald P. Pelletier, Dorry L. Segev, Matthew E. Rutter, Alfredo J. Fabrega, Jeffrey Rogers, Oleh G. Pankewycz, Janet Hiller, Alvin E. Roth, Tuomas Sandholm, Utku Ünver, and Robert A. Montgomery, “A Non-Simultaneous Extended Altruistic Donor Chain,” New England Journal of Medicine, 360;11, March 12, 2009. The paper reports a chain of kidney surgeries that resulted in ten transplants. It began with an altruistic donor, and was able to accomplish so many transplants because they didn't all have to be done simultaneously. There's a simple economic idea at work here. Mostly in kidney exchange, all the surgeries are done simultaneously. The reason is that if two patient-donor pairs are exchanging kidneys, and if one pair were to donate a kidney to the other first, and the other were subsequently unable or unwilling to reciprocate, the pair that donated the kidney would be severely harmed; not only wouldn't they get the kidney they had been counting on, but they would have donated their donor's kidney and thus be unable to participate in a future exchange. But if there is an altruistic donor who doesn't have a specific patient in mind, and if he or she gives to a patient-donor pair, and they can't subsequently continue the chain, that is a loss, but no one is irreparably harmed. So, when chains begin with an undirected donor, they don't have to be simultaneous, since the costs of a breach are less. Mike Rees and the Alliance for Paired Donation are the heroes of this story: here is the APD's press release. Here's a story from the Boston Globe, that emphasizes the Boston/economist connection of Roth, Sonmez and Unver: Kidney-transplant chain broadens donations. Here's an article from the Pittsburgh Post Gazette that takes note of the collaboration with Carnegie Mellon computer scientists, represented in the NEJM paper by Tuomas Sandholm: Altruistic kidney donations.

Market for airline flights

As the pricing, scheduling, and seating options grow more complex, booking an airline ticket is looking more like a combinatorial auction. Some travel sites, like TripAdvisor and Kayak.com aim to help with that by displaying more clearly the available bundles of choices: A Clearing in the Fog of Complicated Booking.

" ' We’re bringing clarity to the marketplace, with disclosure up front,” said Bryan Saltzburg, the TripAdvisor general manager for new initiatives. More clarity and disclosure in the marketplace? Let’s hope it’s a trend."

Financial market design: the view from the Fed

Fed chairman Ben Bernanke, in a speech today (March 10) to the Council on Foreign Relations, after speaking of immediate steps to bail out financial institutions, talks about ways in which the financial markets might be redesigned in the longer term.

"At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about the reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future. We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.
Today, I would like to talk about four key elements of such a strategy. First, we must address the problem of financial institutions that are deemed too big--or perhaps too interconnected--to fail. Second, we must strengthen what I will call the financial infrastructure--the systems, rules, and conventions that govern trading, payment, clearing, and settlement in financial markets--to ensure that it will perform well under stress. Third, we should review regulatory policies and accounting rules to ensure that they do not induce excessive procyclicality--that is, do not overly magnify the ups and downs in the financial system and the economy. Finally, we should consider whether the creation of an authority specifically charged with monitoring and addressing systemic risks would help protect the system from financial crises like the one we are currently experiencing."

Regarding the financial infrastructure, he mentions among other things that
"To help alleviate counterparty credit concerns, regulators are also encouraging the development of well-regulated and prudently managed central clearing counterparties for OTC trades. Just last week, we approved the application for membership in the Federal Reserve System of ICE Trust, a trust company that proposes to operate as a central counterparty and clearinghouse for CDS transactions. "

On the subject of clearinghouses, he goes on to say
"The Federal Reserve and other authorities also are focusing on enhancing the resilience of the triparty repurchase agreement (repo) market, in which the primary dealers and other major banks and broker-dealers obtain very large amounts of secured financing from money market mutual funds and other short-term, risk-averse sources of funding.
...
it may be worthwhile considering the costs and benefits of a central clearing system for this market, given the magnitude of exposures generated and the vital importance of the market to both dealers and investors. "

His comments on "procyclicality" e.g. on making sure that regulation of capital reserves don't cause banks to cut back lending just when credit needs to be loosened, are also worth reading. His concluding paragraph is a sober look at market design contemplated (as it often must be) in advance of reliable scientific knowledge, but in light of recent experience:

"Financial crises will continue to occur, as they have around the world for literally hundreds of years. Even with the sorts of actions I have outlined here today, it is unrealistic to hope that financial crises can be entirely eliminated, especially while maintaining a dynamic and innovative financial system. Nonetheless, these steps should help make crises less frequent and less virulent, and so contribute to a better functioning national and global economy."

Job fairs and flower shows

Job fairs, which are intended to reduce search costs and make it easier for recruiters and recruits to find each other, seem to persist both in good times, when it may be hard for firms to fill their openings, and in hard times, when it may be hard for job seekers to find firms with openings:
At Career Fairs, Anxiety and Hope for Job-Seekers.

Flower shows, which are similarly intended to make it easier for big nurseries and their potential customers to find each other, only recover their costs when there are lots of potential customers: Economic Crisis Takes a Toll on Flower Shows. So the recession is causing many traditionally annual shows to be cancelled.

Prediction markets: why aren't they used more?

While prediction markets have a distinguished history, and are currently used in some interesting applications, the Economist magazine writes: Prediction markets: An uncertain future, A novel way of generating forecasts has yet to take off.

"NOT SO long ago, prediction markets were being tipped as a fantastic new way to forecast everything from the completion date of a vital project to a firm’s annual sales. But although they have spread beyond early-adopting companies in the technology industry, they have still not become mainstream management tools. Even fervent advocates admit much remains to be done to convince sceptical managers of their value. “It’s still a pretty evangelical business,” says Leslie Fine of CrowdCast, one of the firms that provide trading platforms for companies keen to pool the collective wisdom of their employees."

The Economist has some hypotheses about the difficulties so far:
"A big hurdle facing managers using prediction markets is getting enough people to keep trading after the novelty has worn off. "...
"Another reason prediction markets flop is that employees cannot see how the results are used, so they lose interest. "...
"Bosses may also be wary of relying on the judgments of non-experts."

At Crowdcast (formerly Xpree) they have a market design hypothesis. They blog in response to the Economist article:
"we believe prediction markets are not yet mainstream because the current solutions rely on mechanisms designed for the stock market, not for the enterprise."

(N.B. A blog that follows prediction markets is Midas Oracle .ORG )

College admissions decisions: signaling and waiting

Right now, American high school seniors who have applied to colleges are mostly waiting to hear where they will be admitted. (The major exceptions are seniors who applied and were admitted to a college through a single-application, binding early admissions program, in which they agreed in advance to attend if accepted.) Once the colleges make their acceptance decisions, it will be their turn to wait, to see which students will accept their offers. Because of the recession, there is more uncertainty than usual: In a Shifting Era of Admissions, Colleges Are Sweating.

So colleges are trying to determine which students are likely to come if admitted, and the signals that students send (and have sent) in this regard may turn out to be important in admissions decisions.


"Typically, they rely on statistical models to predict which students will take them up on their offers to attend. But this year, with the economy turning parents and students into bargain hunters, demographics changing and unexpected jolts in the price of gas and the number of applications, they have little faith on those models.
...
"In response, colleges are trying new methods to gauge which applicants are serious about attending: Wake Forest, in North Carolina, is using Webcam interviews, while other colleges say they are scrutinizing essays more closely."
...
"Colleges consider an amalgam of factors, comparing them to past trends, to predict whether a student will attend, including, for example, what high school he went to; the strength of his grades, scores and recommendations; how much financial aid he has been offered; and whether he plays the cello or wants to study ethnobotany or economics. (If he is a she, the equation looks different still.)
They consider how many phone calls, Web hits, campus visits and applications they have received. "


Hat tip to Neil Dorosin of the Institute for Innovation in Public School Choice (IIPSC).

Microstructure of Macro Behavior

In connection with the launch of the paperback version of his book The Logic of Life, Tim Harford has a nice video illustrating one of Tom Schelling's demonstrations of how market outcomes may not reflect the preferences of any individual market participant: The Logic of Life: Racial Segregation and Thomas Schelling.

Schelling's demo had to do with a residential real estate market in which everyone preferred to live in a racially integrated neighborhood in which people of their own race were in a slight majority, and how the resulting dynamics could lead to segregation that nobody wanted. Harford's video dramatizes this with brown and white eggs.

(The title of this blog post comes from Micromotives and Macrobehavior, Schelling's wonderful book on the subject, originally published in 1978.)

School choice in Europe

I've frequently blogged about the design of school choice systems, and that is in part because the problems of school choice are so widespread, and difficult.

In Flanders, where there is a first-come-first-served allocation system, parents have been camped out for a week in winter weather to secure places for their children (here is a story, in Flemish, with a picture).

In England, where lotteries decide many school allocations, the costs of randomness are being felt: Identical twins go to schools 18 miles apart.

We now do better than that in NYC and Boston.

Another contested auction, and some precautions

In an earlier post, Auction disruption by fake bids, I followed an auction of Chinese artifacts that was opposed by the Chinese government, and was ultimately disrupted when the high bidder indicated that his bid was fraudulent. Today's news is of an auction in Manhattan of Gandhi memorabilia (a watch and some other personal property) opposed by the Indian government (which had offered a pre-emptive bid of $20,000 for the items in an attempt to halt the sale, and had obtained an injunction in an Indian court when this was refused): Gandhi Items Sold for $1.8 Million.

The high bidder was an Indian national who may or may not be planning to donate the items to the Indian government. The auction house took some steps intended to protect themselves against the kind of disruption by false bid that occurred in the auction of Chinese artifacts.

"For the first time, Antiquorum Auctioneers, which focuses on watches, is requiring banking references, said Mr. Maron, the chairman.
Recently, Cai Mingchao, a collector and auctioneer, raised an uproar after he submitted two winning bids for bronze sculptures from China’s Qing Dynasty at a Christie’s auction in Paris. Mr. Cai later refused to pay for the items, saying he had deliberately sabotaged the auction because the sculptures had been illegally looted in the 19th century from an imperial palace outside Beijing.
“We are concerned about what happened at Christie’s,” Mr. Maron said in a phone interview. "

Trust and trustworthiness: promoting and maintaining it

Trust is essential for all sorts of transactions, and how to set up institutions to promote trust and trustworthiness in the marketplace is a big concern of market design.

It is even a big concern of armies trying to win the hearts and minds of a population in the face of a guerrilla insurgency. There's a very interesting essay in the Washington Post about earning, maintaining and restoring trust, by Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff: Building Our Best Weapon.

On a more technical note, I'm reading Community Structure and Market Outcomes: Towards a Theory of Repeated Games in Networks by Itay Fainmesser (who you can try to hire next year). He is interested how patterns of connections between buyers and sellers can promote trustworthy behavior through repeated play, and how the effort to achieve trust in the marketplace by engaging in long term relationships may exclude some parties from the market. In this connection he writes "...repeated interactions cannot perfectly substitute for institutions..."

The kinds of institutions he is thinking of are both legal (if you can sue me for non-performance, this makes it easier to trust me), and reputational (if you can give me a credible negative review that will impede my ability to transact in the future, this also makes it easier to trust me).

As it happens, I've also been reading about the recent redesign of eBay's reputational system: "ENGINEERING TRUST - RECIPROCITY IN THE PRODUCTION OF REPUTATION INFORMATION," - by Gary Bolton, Ben Greiner, and Axel Ockenfels. It is a very nice market design paper.

They describe some of the design concerns behind eBay's 2007 rollout of its new, more detailed feedback system, in which buyers are able to give some feedback on sellers anonymously. In particular, they describe how they and eBay became concerned that the old reputation system became less informative than it might have been, because the pattern of reciprocally positive feedback concealed underlying dissatisfactions. They describe how (both prospectively and retrospectively) they compared the relevant field data, and how laboratory experiments helped verify the intuitions gained in that way, and allowed them to see the efficiency effects of an improved reputation system.

Student loans

"If Congress approves the plan, there will be no need to set subsidies because there will be no banks to subsidize. "

No no, not the current bank bailout (although it's easy to see how that sentence could be misinterpreted). In this case it refers to an auction the federal government is planning to hold to determine which lenders will be authorized to issue federally subsidized student loans: Education Dept. Forges Ahead With Student-Loan Auction. The idea is that banks would submit bids indicating how much federal subsidy they would require to issue student loans on agreed terms, and the lowest subsidies would win.

But "...by the time the auction process is complete, it could be moot. President Obama has called for abolishing the guaranteed-loan program altogether. If Congress approves the plan, there will be no need to set subsidies because there will be no banks to subsidize. "

Markets for studying

The NY Times reports on incentive programs designed to motivate students to study, and on some apparent controversy between economists and psychologists interested in the subject: Rewards for Students Under a Microscope.

My colleague Roland Fryer is organizing several of these incentive programs, in collaboration with schools in NYC, Washington DC, and Chicago, through Ed Labs at Harvard.

The Times story reports that some psychologists are skeptical, because of concerns that incentives may damage intrinsic motivation:
"Still, many psychologists warn that early data can be deceiving. Research suggests that rewards may work in the short term but have damaging effects in the long term.
...
"This kind of psychological research was popularized by the writer Alfie Kohn, whose 1993 book “Punished by Rewards: The Trouble With Gold Stars, Incentive Plans, A’s, Praise and Other Bribes” is still often cited by educators and parents. Mr. Kohn says he sees “social amnesia” in the renewed interest in incentive programs.
“If we’re using gimmicks like rewards to try to improve achievement without regard to how they affect kids’ desire to learn,” he said, “we kill the goose that laid the golden egg.” "

But the story gives Roland the last word:
"Meanwhile, Dr. Fryer of Ed Labs urges patience in awaiting the economists’ take on reward systems. He wants to look at what happens over many years by tracking subjects after incentives end and trying to discern whether the incentives have an impact on high school graduation rates.
With the money being used to pay for the incentive programs and research, “every dollar has value,” he said. “We either get social science or social change, and we need both.”"

Auction disruption by fake bids

In an earlier post, Markets and Fraud, I discussed the case of an environmental activist who disrupted an auction for oil and gas drilling rights by submitting the winning bids on several tracts. Now comes a report of an auction by Christies of some Chinese bronzes that the Chinese government claims as national cultural artifacts: Chinese Man Bids but Won’t Pay for Looted Bronzes , and Chinese Bidder Says He Won’t Pay for Looted Bronzes

"A man claiming to be the mysterious bidder who bought two Qing dynasty bronzes at an auction in Paris surfaced Monday, saying it was his patriotic duty to refuse to pay the $40 million winning bid.
A Chinese collector and auctioneer, Cai Mingchao, said at a news conference in Beijing he had made the anonymous winning bids for the 18th-century bronze heads of a rat and a rabbit. He described himself as a consultant with the Lost Cultural Relics Recovery Program, a nongovernmental group that seeks to bring looted artifacts back to China.
...
"On moral grounds, and as a way to protest the auction, Mr. Cai added, “I want to emphasize that the money won’t be paid.”"


"The Chinese government had attempted to halt the sale of the relics, saying they should be returned, not sold.
However, the government denied having anything to do with the fake bid."
...
"In a statement, Christie's said: ''We are aware of today's news reports. As a matter of policy, we do not comment on the identity of our consignors or buyers, nor do we comment or speculate on the next steps that we might take in this instance.''"

One aspect of auction design that may need greater attention if these kinds of disruptions become commonplace is how to qualify and verify bidders and winners, and notify other bidders in the event that winners default, so that auctions can be made more resistant to attack by fake bidders.

Design of electricity markets (and salute to Bob Wilson)

For roughly the retail price of 1200 kilowatt hours of electricity, you can buy the Elsevier book Competitive Electricity Markets: Design, Implementation, Performance . (It seems to have been out for almost a year, but I've just noticed it now...)

I haven't read it yet, but the first chapter looks worthwhile: it is by Hung-Po Chao, Shmuel Oren, and Robert Wilson, and is called "Reevaluation of Vertical Integration and Unbundling in Restructured Electricity Markets."

Bob Wilson is of course the dean of design, one of the pioneers not only of the design of electricity markets, but of auction design generally. Here are some of his papers. (And for those of you who come only recently to the economics biz, and don't know what a role model looks like, here is his cv.) Chao and Oren and Wilson seem to have published their first joint paper on electricity in 1986.

While I'm remembering, I'm reminded that Bob's students produced an online Festschrift in his honor in 2002, called Game Theory in the Tradition of Bob Wilson. Here are the first paragraphs of the introduction, which was written by Bengt Holmstrom, Paul Milgrom, and myself.

"One of the nicer events in academic life is when we pause to recognize a scholar whose work is unusually important and influential, whose work marks the start of a new tradition.

"When that scholar is also a great teacher and advisor, his students have the added pleasure of recalling his influence on them, and how it is reflected both in their own scholarship, and in how they teach and advise their own students. Students are the generations through which traditions are transmitted. This volume of selected published papers by Bob’s students, accompanied by new introductory essays, is a celebration of Bob’s tradition, by those of us who had the exceptional good fortune to receive it at first hand.

"And what is this tradition? Scholarship as varied and wide ranging as Bob’s defies easy characterization. He was among the first to recognize that it was going to be of the utmost importance for game theorists to understand how information is distributed and manipulated, concealed, and revealed. He was among the first to emphasize the importance in strategic calculations of players’ beliefs about what other players would do, even in situations that were not anticipated to arise. But what especially marks him as a leader among the great economists of his generation is his view of the role of theory. In his understated way, he wrote in the preface to his book Nonlinear Pricing: “The value of theory is its usefulness in addressing practical problems. . . ” And he went on to reflect on the role of practical problems in his own scholarly development: “. . . for the theorist, the problems encountered by practitioners provide a wealth of topics.”

"So, game theory in the tradition of Bob Wilson is game theory in the service of economics as a confident, practical, useful discipline. And research in the style of Bob Wilson is work that takes its inspiration not only from a wide reading and deep understanding of the work of other academics, but also from the ordinary stuff of economic life. In this spirit, Bob’s work has produced not only acute conceptual insights of great generality, but also advice about and solutions to knotty problems of strategy and design."

Medical data as an underprovided public good

Evidence based medicine requires data that are often difficult to assemble. Since drugs and medical devices are regulated, regulators have the option of requiring data to be collected. But data collection costs money (particularly in light of stringent laws that require the privacy of individual patients to be protected), and so it is often difficult to study the effect of medical interventions by following up on the health of patients.

A recent story summarized the issue succinctly: Heart Device Dispute Renews Push for User Registry

"Conflicting data this week about the failure rate of a critical and widely used Medtronic heart device has set off a debate among researchers who want to understand the discrepancies and the implications for patient care.
But some experts say that debate would not be occurring if federal officials, medical device makers and more doctors had thrown their weight more fully behind efforts to develop a national database of patients who get heart devices.
The Obama administration has announced plans to pour hundreds of millions of dollars into studies to compare the effectiveness of competing medical treatments and devices. Monitoring patients’ outcomes through registries could be part of that process.
But setting up such registries in this country has proved difficult so far. "

It seems that Medicare mandated the establishment of such a registry for defibrillators, but didn't fund it.

"And while defibrillator makers did help support the $3 million annual cost of operating the registry in its first year, they have since cut back that financing... Dr. Alan Kadish ... said he did not think that manufacturers believed that they would “be fulfilling their fiduciary obligations to shareholders by funding” studies that compare the effectiveness of their devices to those of competitors. " "

HT Scott Kominers

Real estate auctions for price discovery

Sales by auction are coming to the new condo market in New York City: And Do I Hear $2 Million? No? $1 Million? Sold!

"Real estate auctions, rarely used in New York, have the potential to both move property and indicate to reluctant buyers what the true market prices are. Given the current sales drought, even a handful of auctions could reset prices for new condominiums citywide, said Jonathan J. Miller, the president of Miller Samuel, a Manhattan research and appraisal company. He said he expects the auctioned properties to sell for 40 to 45 percent below the asking prices of the first quarter of 2008, when the market peaked"
...
"In the auctions run by Accelerated, only a portion of a building’s unsold units are sold in one swoop, to avoid depressing values more than necessary. The remainder are marketed the traditional way, at the new, lower auction prices. "
...
"Auctions have succeeded in loosening other battered markets, like South Florida. In two held there last fall by Accelerated, 30 to 40 units in partly sold developments went for about half their peak prices. The developers say sales have picked up since then, at prices slightly below those received at auction. "

The real estate auction firm mentioned in the article is Accelerated Marketing Partners, of Boston.

Kidney Exchange in Australia

Western Australia has a new Kidney Exchange Program directed by Professor Paolo Ferrari of the University of Western Australia. Like kidney exchange programs in the U.S. they are finding the benefits of organizing exchanges as chains: Domino donations reduce kidney transplant wait .

"Prof Ferrari said he expected a national paired kidney exchange program to be established in 2009."

It looks like his confidence is well founded, since when the Prime Minister of Australia gave a speech on organ donation (Rudd opens Organ Donor Awareness Week), he included the following: "The [Australian Organ and Tissue Donation and Transplantation] Authority is also working to implement the new National Paired Kidney Exchange Program"

Market for hand crafted food

Like the town that was too small to support one lawyer, and so had to have two, Brooklyn is becoming a center of artisan-produced fine food: Brooklyn’s New Culinary Movement. Not only does a cluster of local food producers help build demand, they also support each other in production:

"To design a boning knife, Mr. Bukiewicz has been sitting in on Mr. Mylan’s butchering classes and taking note of how his hands move.
That sort of collaboration is common.
Two weeks ago Sixpoint Craft Ales, in Red Hook, introduced Dubbel Trubbel, an ale made with cacao nibs from Mast Brothers Chocolate. Sixpoint Craft Ales already brews Gorilla Warfare, an American porter made with Ethiopian Yirgacheffe from Gorilla Coffee, the Park Slope cafe and roaster. At Wheelhouse Pickles, based in Park Slope, Jon Orren uses wort, a byproduct of brewing from Sixpoint Craft Ales, to flavor his Ploughman’s pickle, a mild, earthy relish made with Greenmarket root vegetables.
And McClure’s Pickles, of Williamsburg, is making a strong, grainy mustard with Brooklyn Brewery’s Brown Ale. (Mr. McClure, by the way, sometimes pays his picklers in pickles.)
Local store owners play an important role, more collaborators than simply merchants. Urban Rustic, Spuyten Duyvil Grocery, Blue Apron Foods, Bedford Cheese Shop and Marlow & Daughters all make a point of carrying Brooklyn-made foods."

Market for Camembert

An important part of European Union trade law is the control of the Appellation d'origine contrôlée (AOC). (This is the locational brand name that, for example, makes Champagne--sparkling wine made in the French Champagne region using the methode champagnoise--different from Cava, the sparkling wine made in Spain by the same method. Which brings us to the question of Camembert de Normandie, the French cheese that, according to the Camembert Charter, must be made by hand from raw (unpasteurized) milk.

Because raw milk can harbor disease causing bacteria, the costs of making cheese safely from raw milk is greater than from pasteurized milk. Because of health concerns, the U.S. Food and Drug Administration controls the interstate sale of raw milk and cheeses made from raw milk. All of which brings us back to France, the home of both Camembert and pasteurization. Der Spiegel reports that one of France's largest cheese producers has just given up a long campaign, citing health concerns, to change the Camembert Charter to allow pasteurized milk to be used. But consumers and other producers successfully resisted, and it remains the case that no cheese made with pasteurized milk can be sold as le Camembert de Normandie.

I can't quite tell if this is brand protection, some other kind of protectionism, or if it is related to the kind of repugnance associated with the resistence to genetically modified crops in Europe. But it makes for a good story, and reflects some of the complexities of buying, selling, and labelling food.

Assisted suicide, Right to Die

We say that a transaction that some people want to engage in is "repugnant" if other people don't want them to, and assisted suicide fits the bill; it remains a crime in most states. But the demand for dignified death by the terminally ill means that the issue raises its head time and again. The NY Times reports: 4 Charged in Multi-State Suicide Assistance Probe .

The organization in question in this case is the Final Exit Network, and the particular charge is that they offered advice and moral support to a terminally ill Georgia man.
"The Georgia man's mother, Betty Celmer, contended that the group shouldn't face charges if they helped her son.
''If they helped John to die, that is what he wanted. I would never find them guilty for helping him,'' she said. ''If someone helped him, I think that was in God's hands.''"

A quick search on the web reveals that the venerable Hemlock Society is no more, but that there remain non-profit organizations devoted to the idea of dignified death, its discussion, and to changing legislation on the subject: here is the website of the World Federation of Right to Die Societies.

Kidney Exchange

Miller-McCune magazine has an article on kidney exchange that gives a pretty good view of some current developments (having to do with exchanges involving compatible as well as incompatible pairs, and chains of transplants started by non-directed donors): Making a Market for Kidneys.

"Using game theory and market-design software, doctors are arranging kidney-transplant "swaps" — sometimes in long chains — to give more people with renal disease better transplant options and healthier futures."

The story mentions both the New England Program for Kidney Exchange, and the Alliance for Paired Donation, the two innovative kidney exchange networks with which Tayfun Sonmez, Utku Unver and I have worked extensively. (One of my longstanding frustrations with the ways in which stories make it into the news, however, is that, while I am mentioned by name in the story, my colleagues are not. I invariably mention this frustration to reporters when they call, but often it doesn't help. It must say something about the market for news, although I'm not quite sure what.

Credit: not repugnant anymore

What a difference a few centuries can make. When Shakespeare wrote The Merchant of Venice, lending money was a repugnant transaction.

When President Obama spoke to Congress Tuesday evening, he had this to say: "You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education, how stores stock their shelves, farms buy equipment, and businesses make payroll."

Market design is coming of age

There are an increasing number of signs that Market Design is coming of age as a distinct area of economics. Here are three.

The National Bureau of Economic Research has formed a new Market Design Working Group. Susan Athey and Parag Pathak have organized its first conference, for May 15-16, 2009. Here is the preliminary program.

My Market Design course at Harvard, which for many years used to stand alone, is this year part of a two-semester sequence, with the second semester being Economics 2056b. Topics in Market Design - (New Course) offered by my colleagues Susan Athey and Greg Lewis. More of our Ph.D. students are choosing market design as a field, and we've had some great graduates in the decade I've been at Harvard (all of whom do other things as well:), including Estelle Cantillon, Muriel Niederle, John Asker, Michael Ostrovsky , Ben Edelman, Parag Pathak, Fuhito Kojima, Robin Lee and (this year) Eric Budish and Mihai Manea.

Oxford University Press is preparing a Handbook of Market Design, edited by Nir Vulcan, Muriel Niederle , and Zvika Neeman.

Market design from the other side of the fence

Market design is both about designing markets (design as a verb) and about understanding the design of existing markets (design as a noun). This latter activity is the way game theorists originally got into the business; by looking at the existing 'rules of the game,' and figuring out how they worked, and could be made to work.

I'm reminded of this by two working papers on auctions, one focused on offering consulting advice to a bidder, and the other on criminal collusion among bidders.

The consulting story is by the A-team of spectrum auction consultants, and recounts some of their recent experience giving bidding advice: Winning Play in Spectrum Auctions by Jeremy Bulow, Jonathan Levin and Paul Milgrom. They focus on the information flows in multi-round auctions, and how the amounts bid in early rounds can help forecast final prices, which is an aid in deciding on which lots to bid:

"In major spectrum auctions, even large corporations need to raise or put aside money in advance to finance their spectrum purchases. Many of these companies also have a broad set of target licenses. If these licenses are substitutes and the budget constraint is binding, the bidder's optimal purchase will involve spending its whole budget or nearly so. Of course not every bidder falls into this category. For bidders with tight budgets and narrow interests, or for entrants with all-or-nothing goals, rising prices could lead them to spend zero once the prices of target licenses rise too high.

"If bidders in the first category account for enough of the money in the auction, a previously unexplored pattern becomes identifiable in the data. Define a bidder's exposure to be the sum of all of its bids in a given round, including its standing high bids from the prior round and all of its new bids in the current round, whether provisionally winning or not. This is the largest amount that a bidder might have to pay if all of its bids were to become winning. If a bidder faces a binding budget constraint and has broad interests, then as prices increase from round to round, its total exposure will eventually level off at an amount approximating its budget. If all bidders were to fall in this category, then the total exposure of all bidders in the auction would rise to the level of the aggregate bidder budgets and level off, forecasting the final auction prices. As prices rise, bidders will narrow the set of licenses on which they bid, the identities of the provisionally winning bidders on various licenses will change, and total winning bids will continue to rise, but final total winning bids will be forecast early and well by total exposure."

The account of criminal collusion is John Asker's A Study of the Internal Organisation of a Bidding Cartel, which tells of a long lived cartel of stamp dealers who agreed in advance which of their members would bid on each lot that they were collectively interested in. (He obtained the data from the prosecution records of the Antitrust Bureau of the New York Attorney General’s Department.) They coordinated among themselves by first holding a "knockout auction" (of roughly the kind that Graham, Marshall, and Richard 1990 described among bidders in New Jersey machine tool auctions), to determine which of the cartel members would be allocated the right to bid on each lot, and what sidepayments would be made following a successful bid. The detailed data allow Asker to estimate the costs that the cartel imposed on sellers and on other bidders who were not members of the cartel.

Real estate auctions

Sales of property by auction seem to rise in bad times: Commercial Auctions Expected to Rise . The attraction of an auction is that it can aid in price discovery, and move quickly.

One such property "is the John Hancock Tower in Boston, which is set to go on the auction block next month. The dire turn of events came after Broadway Partners, based in New York, which bought the tower in 2006 for $1.3 billion, defaulted in January on some loans, prompting a group of mezzanine lenders to hire Green Loan Services, a unit of SL Green, to pursue an auction. (Mezzanine loans are secured by a stake in ownership rather than the actual property; they have become increasingly popular over the last several years of high-leverage deal making.)"
...
"Auction houses are poised for a growing role in commercial real estate. The strengths of the auction model — a faster sales cycle, lower costs, and the ability to quickly determine a fair market value — play into current market conditions.
“It’s tough to put your finger on a price right now,” said Randy Wells, the president of the National Auctioneers Association. He said that comparable sales and listings could be consulted “but it’s guesswork right now,” and that auctions “are really good at finding a current market value in a short amount of time.” "

School choice in England, continued

School choice, a frequent subject on this blog, is a vexed question around the world. In Britain, the Telegraph reports, Children allocated school places on 'roll of a dice': Thousands of children must take part in random lotteries for school places in a Government attempt to break a middle-class stranglehold on the best schools.

"Schools in a quarter of council areas are allocating places by lottery or "fair banding" – in which the school uses test results to deliberately select a proportion of pupils of poor ability.
The move could cause difficulties for affluent families who have dominated successful schools by buying houses within their catchment areas, often paying a premium of tens of thousands of pounds.
Last year, Brighton became the first area to allocate places at all oversubscribed schools through lotteries after Government reforms gave councils and schools the power to do so. The policy is designed to make all state schools truly comprehensive by ensuring they contain pupils of mixed abilities and social backgrounds, rather than being dominated by those who can afford to live nearby."

It turns out that in New York City, where my colleagues and I helped design a high school choice system, some schools ("Educational Option Schools") also require that a full range of student abilities be represented.