Topics in Market Design: Econ 287/365: Winter quarter, Itai Ashlagi

Itai Ashlagi will be teaching Econ 287 this quarter, on topics in market design.  It's highly recommended.

He writes that the syllabus below is very tentative, and will depend in part on how many of the enrolled students took Econ 285 (Ostrovsky and Roth) in the Fall (back in 2023:-)

Topics in Market Design 2024, Itai Ashlagi

Market design is a field that links the rules of the of the marketplace to understand frictions, externalities and more generally economic outcomes. The course will provide theoretical foundations on assignment and matching mechanisms as well as mechanism design. There will be emphasis on theories at the intersection of economics, CS and operations as well as applications that arise in labor markets, organ allocation, platforms.

The class will further expose students to timely market design challenges and will we will host a few guest lectures. The class offers an opportunity to begin a research project. Students will reading critique papers, present papers and write a final paper.

Lectures: Monday 10:30am-1:20pm Shriram 052

Course requirements: (i) reading and writing critiques about papers, (ii), presenting papers in class, and (iii) a term paper.

Instructor: Itai Ashlagi. iashlagi@stanford.edu

Some potential papers for presenting:

Equity and Efficiency in Dynamic Matching: Extreme Waitlist Policies, Nikzad and Strack.

Eliminating Waste in Cadaveric Organ Allocation, Shi and Yin

Pick-an-object mechanisms, Bo and Hakimov

Monopoly without a monopolist, Huberman, Leshno and Moallemi

The College Portfolio Problem, Ali and Shorrer

Equal Pay for Similar Work, Passaro, Kojima, and Pakzad-Hurson

Auctions with Withdrawal Rights: A Foundation for Uniform Price, Haberman and Jagadessan.

Optimal matchmaking strategy in two-sided marketplaces, Shi

Practical algorithms and experimentally validated incentives for equilibrium-based fair division (ACEEI),

Budish, Gao, Othman, Rubinstein

Congestion pricing, carpooling, and commuter welfare, Ostrovsky and Schwarz

Artificial intelligence and auction design, Banchio and Skrzypacz

Selling to a no-regret buyer, Braverman et al.

Dynamic matching in overloaded waiting lists, Leshno

The regulation of queue size by levying tolls, Naor

Optimal search for the best alternative, Weitzman

Whether or not to open Pandora’s box, Doval

Descending price optimally coordinates search, Kleinberg, Waggoner, Weyl

Market Failure in Kidney Exchange? Nikhil Agarwal, Itai Ashlagi, Eduardo Azevedo, Clayton Featherstone and Omer Karaduman

Choice Screen Auctions, Michael Ostrovsky

Incentive Compatibility of Large Centralized Matching Markets, Lee

Tentative schedule:

Week 1: Two-sided matching, stability and large markets.

Week 2: One-sided matching, duality, optimization and constraints.

Week 3: Multi-item auctions, auction design, revenue equivalence, optimal auctions, interdependent

valuations.

Week 4: Congestion, dynamic matching.

Week 5: Waitlists, search and learning.

Week 6: Foundations of mechanism design.

Week 7: Robustness in implementation

Weeks 8-10: Projects

We will host several guest lectures. Presentations of papers will take place throughout the course.

Background references

1. List of (mostly applied) papers are given in a separate document.

2. Books

Roth, Alvin E.and Marilda A. Oliveira Sotomayor, Two-sided matching: A study in game-theoretic modeling and analysis. No. 18. Cambridge University Press, 1992.

Vijay Krishna, Auction Theory, 2010.

Tilman Borgers, An Introduction to Mechanism Design by Tilman Borgers.

Milgrom, Paul, Putting Auction Theory to Work, 2004.

3. Papers

(a) Introduction

Roth, Alvin E. The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics. Econometrica, 70(4), 2002. 1341-1378.

Klemperer, Paul, What Really Matters in Auction Design?, Journal of Economic Perspectives, 16(1): 169-189, 2002.

Weitzman, Martin, Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need it Most?, The Bell Journal of Economics, 8, 517-524, 1977.

(b) Stable matching and assignment

Gale, David and Lloyd Shapley, College Admissions and the Stability of Marriage, American Mathematical Monthly, 69: 9-15,1962.

Roth and Sotomayor, Chapters 2-5.

Hylland, Aanund, and Richard Zeckhauser. The efficient allocation of individuals to positions, The Journal of Political Economy, 293-314,1979.

Roth, Alvin E., The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory. Journal of Political Economy, 92: 991-1016, 1984.

Kojimam, Fuhito and Parag A. Pathak. Incentives and stability in large two-sided matching markets. American Economic Review, 99:608-627, 2009

Abdulkadiroglu, Atila and Tayfun Sonmez. School choice: A mechanism design approach. American Economic Review, 93:729-747, 2003.

Abdulkadiroglu, Atila , Parag A. Pathak, and Alvin E. Roth. The New York City high school match. American Economic Review, 95:364-367, 2005.

Ashlagi, Itai, Yash Kanoria, and Jacob D. Leshno. Unbalanced random matching markets: The stark effect of competition, Journal of Political Economy,

Ashlagi, Itai and Peng Shi. Optimal allocation without money: An engineering approach. Management Science, 2015.

Peng Shi and Nick Arnosti. Design of Lotteries and Waitlists for Affordable Housing Allocation, Management Science, 2019.

Peng Shi, Assortment Planning in School Choice, 2019.

Ashlagi, Itai, and Afshin Nikzad. What matters in tie-breaking rules? how competition guides design, 2015.

(c) Auctions and revenue equivalence

Myerson, Roger Auction Design, Mathematics of Operations Research, 1981.

Milgrom, Paul. Putting Auction Theory to Work. Chapter 2-3.

W. Vickrey, Counterspeculation, auctions, and competitive sealed tenders, The Journal of Finance, 16(1) 8–37, 1961.

R. Myerson, Optimal auction design, Mathematics of Operations research, 1981.

J. Bulow and J. Roberts, The simple economics of optimal auctions, Journal of Political Economy, 1989.

J. Bulow and P. Klemperer, Auctions vs negotiations, American Economic Review, 1996.

P.R. McAfee and J. McMillan, Auctions and bidding, Journal of Economic Literature 1987.

P. Milgrom and R. Weber, A theory of auctions and competitive bidding, Econometrica, 1982.

Roth, A. E. and A. Ockenfels, Late-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon.” American Economic Review, 92(4): 1093-1103, 2002.

(d) Mechanism design

Vickrey, William (1961): Counterspeculation, Auctions and Competitive Sealed Tenders. Journal of Finance, 16(1): 8-37.

Ausubel, Larry and Paul Milgrom, The Lovely but Lonely Vickrey Auction. in Cramton et. al Combinatorial Auctions, 2005.

J.C. Rochet, A necessary and sufficient condition for rationalizability in a quasi-linear context”, 1987.

K. Roberts, The characterization of implementable choice rules”, 1979.

F. Gul and E. Stacchetti, Walrasian equilibrium with gross substitutes, Journal of Economic Theory, 1999.

I. Ashlagi, M. Braverman, A,. Hassidim and D. Monderer, Monotonicity and implementability, Econometrica, 2011.

(e) Dynamic mechanism design and dynamic pricing

G. Gallego and G. Van Ryzin, Optimal dynamic pricing of inventories with stochastic demand over finite horizons. Management science, 40(8), 999-1020, 1994.

S. Board and A. Skrzypacz, Revenue management with forward-looking buyers, Unpublished manuscript, Stanford University,2010.

A. Gershkov, B. Moldovanu, P. Strack, Revenue Maximizing Mechanisms with Strategic Customers and Unknown, Markovian Demand

D. Bergemann and J. Valimaki, The dynamic pivot mechanism, Econometrica, 2010.

A. Gershkov and B. Moldovanu, Dynamic Revenue Maximization with Heterogeneous Objects: A Mechanism Design Approach, 168-198, 2009.

F. Gul, H. Sonnenschein, R. Wilson, Foundations of dynamic monopoly and the Coase conjecture, J. of Economic Theory, 1986.

D. Besanko and W. L. Whinston, Optimal price skimming by a monopolist facing rational consumers, Management Science, 1990.

(f) Dynamic matching

Itai Ashlagi and Alvin E. Roth. New challenges in multihospital kidney exchange. American Economic Review, 102:354-359, 2012

Nikhil Agarwal, Itai Ashlagi, Eduardo Azevedo, Clayton Featherston and Omer Karaduman. Market Failure in Kidney Exchange, 2018.

Anderson, R., Ashlagi, I., Gamarnik, D. and Kanoria, Efficient Dynamic Barter Exchange, Operations Research, 2015.

Mohammad Akbarpour, Shengwu Li, and Shayan Oveis Gharan. Dynamic matching market design. JPE, 2019.

Baccara, Mariagiovanna, SangMok Lee, and Leeat Yariv, Optimal dynamic matching, 2015.

Jacob Leshno, Dynamic Matching in Overloaded Waiting Lists, 2017.

Pilot projects to speed deceased donor organ allocation

I won't use the word "experiments" for fear of the evil eye, but the OPTN is planning to authorize 'pilot programs' to try to speed the allocation of deceased donor organs. The idea is that after an organ has been rejected numerous times, and has started to be in danger of discard, it can be offered to a transplant center and patient that are likely to accept and transplant it, rather than proceeding to offer it to centers and patients in priority order. This is important, because too much waiting time on ice is one of the chief reasons that organs are rejected and eventually discarded.

Expedited Placement Variance his proposal recommends a new variance related to expedited organ placement and proposes modifying the OPTN’s variance process in order to allow for more rapid studies of potential improvement.

"Proposed changes

"Create a variance to govern pilot projects related to expedited organ placement.

Gives the OPTN Executive Committee authority to develop protocols for expedited organ placement.

This approach will allow the OPTN the ability to rapidly iterate on different protocols.

Update portions of the OPTN’s governance structure regarding variances.

This will allow for a more rapid and iterative approach when creating new variances."

Read the full proposal (PDF)

"The task force intends to conduct multiple iterative pilots or PDSAs with the community to identify effective practices to improve the efficiency of the organ allocation process. (Not all pilots or PDSAs will require a policy variance.) This proposal 1) creates a variance to govern the expedited placement pilots and 2) adjusts the OPTN’s governance of all variances. Additional variances or process improvement projects will focus on other topics to improve the efficiency of the organ allocation process.

"The Committee is issuing this proposal for a thirty-day public comment period, which is shorter than the usual public comment period. This is to allow the variance to take effect sooner than the end of regular public comment but allow the community time to comment on the proposed variance. It also is in line with the public comment periods for emergency and expedited policy changes."

What's ahead for U.S. organ allocation in the coming year

 Here's the December announcement from HRSA of their plans for reforming organ procurement and allocation this year.  

Organ Procurement and Transplantation Network (OPTN) Modernization Initiative. HRSA's approach to securing best-in-class expertise and an independent Board of Directors, December 2023 Updates

"At every step of the modernization process, HRSA has been committed to robust competition for the first-ever multi-vendor solicitations for OPTN contracts, and we were pleased that Congress supported our vision for fundamental reform through passage of the bipartisan Securing the U.S Organ Procurement and Transplantation Network Act. For more than a year, we have pursued a fundamental sea change in how the OPTN operates in order to improve the performance, transparency, independence, and accountability of this life-saving system for patients – the first time in the nearly 40-year history of this program that any Administration has advocated for this type of fundamental reform to break up the monopoly. Below is an update on the progress made to date and details regarding next steps. 

...

"A key element of HRSA’s OPTN Modernization Initiative is the President’s Fiscal Year 2024 Budget proposal to more than double investment in organ procurement and transplantation with a $36 million increase over Fiscal Year 2023 for a total of $67 million. In light of the uncertainty regarding full-year appropriations for Fiscal Year 2024, as well as the upcoming holidays and HRSA’s commitment to providing at least 60 days for potential bidders to respond to solicitations, HRSA plans to issue the solicitations in January 2024.

...

"1. Launching an Independent OPTN Board of Directors

"Current practice: For nearly 40 years, the Board of Directors for the Organ Procurement and Transplantation Network (OPTN) has been comprised of the same individuals who serve as the Board of Directors for the private entity that has held the OPTN contract. No formal requirements existed to protect against conflicts of interest resulting from this shared role.

"Under HRSA’s OPTN Modernization Initiative:

"HRSA will issue a solicitation in January 2024 for independent non-profit organizations to bid on supporting an independent OPTN Board of Directors in order to ensure mission-driven governance, strong conflict of interest policy, and that the system remains a public good not a private asset. The organization awarded the OPTN Board Support Contract will not be awarded any other OPTN contract.

...

"2. Robust Competition for First Ever Multi-Vendor Solicitations to Support Best-in-Class Vendors for OPTN IT, Operations, Communications, Research and Evaluation

"Current practice: Across the nearly 40-year history of the OPTN, all functions of the OPTN have been managed by a single vendor and not competed based on technical expertise in areas like IT or operations. This does not serve patients well and does not allow the system to keep pace with modern technology.  

"Under HRSA’s OPTN Modernization Initiative:

"Phase 1 — Competitive Transition Contracts:

"In January 2024, HRSA will release solicitations open to all non-profit and for-profit organizations for proposals for OPTN work related to information technology management, operations, data analytics/research, and communication.

"These contracts will support the transition from the legacy OPTN system to a modernized system and approach while ensuring uninterrupted access to the organ matching system and related processes in order to support transplantation and prevent unnecessary risk while protecting patients. As such, we refer to them as Competitive Transition Contracts.

...

"Phase 2 — Next Gen Contracts:

"In Summer 2024, HRSA will issue solicitations open to all non-profit and for-profit organizations for proposals for the OPTN Next Gen contracts.

"The Next Gen contracts will prioritize human-centered design practices and will focus on developing a truly modern organ matching technology solution that is highly reliable, secure, and user-friendly."

######

So the plan is to start this month with bids for contracts to manage the transition from the current system to the 'next generation' system, and to follow those in the summer with bids to design the next generation system. (If that seems out of order to you, you're not the only one.)

Market design for the environment, by Cantillon and Slechten

 Here's a recent NBER working paper, to start the year off on an optimistic note:

MARKET DESIGN FOR THE ENVIRONMENT, by Estelle Cantillon and Aurélie Slechten, NBER Working Paper 31987, http://www.nber.org/papers/w31987

Abstract: The main argument in favor of markets in environmental contexts is the same as in other contexts: their ability to promote efficient allocations and production. But environmental problems bring their own challenges: their underlying bio-physical processes - and the technologies to monitor them - constrain what is feasible or even desirable. This chapter illustrates the main design dimensions in environmental markets, the trade-offs involved and their impact on performance, through the lens of a regulated market for pollution rights (the EU emissions trading scheme) and a voluntary market for the provision of environmental services (the global market for carbon credits). While both markets eventually contribute to climate change mitigation, their organisation as a “pollution market”, for the former, and as a “provision market”, for second, means that different design considerations take precedence. Both markets also face challenges: volatile prices in the EU emissions scheme and low trust for voluntary carbon markets. We discuss how alternative design options could address those.

From the Introduction:

"This chapter reviews existing and developing uses of markets for natural capital from a market design perspective. We first provide a typology of environmental problems for which markets can provide a solution. This leads us to distinguish between overexploitation, degradation and underprovision problems. Overexploitation and degradation problems happen when the goods and services provided by Nature are not excludable and property rights are shared or nonexistent. Underprovision problems arise when the natural resource, over which well-established access and usage rights exist, creates positive externalities for agents who do not benefit from any property rights to the resource. We argue that each natural resource is characterized by its specific bio-physical process which constrains the definition of what can be traded and the choice of design to support the goals of the market.

"We illustrate these considerations in the context of climate change mitigation, where compliance markets for emissions reduction and voluntary carbon markets are playing an increasingly important role. The history of the EU emissions trading scheme over the past 20 years illustrates how apparently small design decisions can impact the performance of a market and the challenges of generating an informative and stable price signal, an important desideratum to foster cost efficiency. The current discussions around the integrity of voluntary carbon markets show the importance of the definition of what is traded, and how technology and nature constrain it."

The year in passings

Another year, more memories and memorials:

Sunday, January 29, 2023

Paul David (1935-2023)

Monday, January 30, 2023

Tonya Ingram (1991-2022), health activist, died while waiting for a kidney

Monday, March 20, 2023

Victor Elias (1937-2023)

Thursday, June 22, 2023

Leo Hurwicz (1917-2008), biography

Monday, June 26, 2023

Harry Markowitz (1927-2023)

Friday, June 30, 2023

Lloyd Shapley (1923-2016) Centennial

Sunday, September 17, 2023

Vic Fuchs (1924-2023)

Friday, December 15, 2023

Who Shall Live? (3rd edition) by Victor R. Fuchs and Karen Eggleston

NY Times, Dec. 21

Robert M. Solow, Groundbreaking Economist and Nobelist, Dies at 99

Some year-end good news: U.S. homicides are down

To put deaths in their grim perspective, we have a lot more deaths from drug overdoses than from homicides.  But we're headed in the right direction on one of those. 

The NYT has the story:

After Rise in Murders During the Pandemic, a Sharp Decline in 2023. The country is on track for a record drop in homicides, and many other categories of crime are also in decline, according to the F.B.I. By Tim Arango and Campbell Robertson  Dec. 29, 2023

"In 2020, as the pandemic took hold and protests convulsed the nation after the murder of George Floyd by a police officer in Minneapolis, the United States saw the largest increase in murders ever recorded. Now, as 2023 comes to a close, the country is likely to see one of the largest — if not the largest — yearly declines in homicides, according to recent F.B.I. data and statistics collected by independent criminologists and researchers.

"The rapid decline in homicides isn’t the only story. Among nine violent and property crime categories tracked by the F.B.I., the only figure that is up over the first three quarters of this year is motor vehicle theft. The data, which covers about 80 percent of the U.S. population, is the first quarterly report in three years from the F.B.I., which typically takes many months to release crime data.

Price discovery

 Here's SMBC on price discovery:

 

Mouseover: "Normal People: you economists keep assuming humans have perfect pricing information Microeconomists: we need ever more complex auction mechanisms to suss out the true preferences humans are constantly hiding!" 

Limitations of harm reduction: will Oregon recriminalize drug use?

 The NYT has the story:

To Revive Portland, Officials Seek to Recriminalize Public Drug Use. State and local leaders are proposing to roll back part of the nation’s pioneering drug decriminalization law and step up police enforcement.  by Mike Baker

"After years of rising overdoses and an exodus of business from central Portland, Oregon Gov. Tina Kotek said on Monday that state and city officials are proposing to roll back a portion of the nation’s most wide-ranging drug decriminalization law in a bid to revive the troubled city.

"Under the plan brokered by Gov. Kotek, a Democrat, state lawmakers would be asked to consider a ban on public drug use and police would be given greater resources to deter the distribution of drugs. Ms. Kotek said officials hoped to restore a sense of safety for both visitors and workers in the city’s beleaguered urban core, which has seen an exodus of key retail outlets, including REI, an institution in the Pacific Northwest.

“When it comes to open-air drug use, nobody wants to see that,” Ms. Kotek said in an interview. “We need different tools to send the message that that is not acceptable behavior.”

...

"Oregon voters in 2020 approved the nation’s first law decriminalizing possession of small amounts of hard drugs, including fentanyl, heroin and methamphetamines. The ballot measure sought to end the use of jail as a punishment for drug users and instead treat addiction as a health issue. The effort was to be joined with major new investments in drug treatment, but those new systems have been slow to develop.

...

"Last month, Seattle implemented a new law that prohibits possession of drugs and public use.

...

"Ms. Kotek’s task force does not have the power to immediately ban public drug use, but the panel called for the Legislature to take up the issue in the coming session along with changes that could reduce barriers to prosecuting those who deliver drugs. Lawmakers have already been discussing potential changes to the decriminalization law."

Medical aid in dying considered in Britain, and evolving in Canada

The Guardian has the story about England and Wales, and the NYT has a story on Canada.

Here's the Guardian:

Two former health secretaries join calls for new law on assisted dying

Senior Conservative and Labour figures said they would back changes to legislation on the issue in England and Wales.  by Michael Savage

"Two former health secretaries on Saturday night became the latest senior figures to join the growing demands for a new attempt to legalise assisted dying, as a prominent Tory said he is willing to champion the legislation in parliament.

"With both former Conservative minister Stephen Dorrell and Labour’s Alan Milburn stating they back changing the law in England and Wales, the Observer understands that a Labour government would make time and expert advice available for an assisted dying bill should MPs back it in a free House of Commons vote.

"The news comes as campaigners hope to hold a new vote on the issue early in the next parliament, almost 10 years after the last attempt to alter the law. Kit Malthouse, a former cabinet minister, said he was “absolutely” prepared to front a new private member’s bill on the matter.

...

"Doing nothing is not a passive choice. Leaving the law as it is will consign many thousands of people who may want a different end to a horrible death.”

...

"Milburn, who served as health secretary under Tony Blair, said: “When people today expect to have control over so many aspects of their lives, it feels paradoxical that we are denied the same about how we want to die. It’s perhaps the most important decision any of us can make. To deny that choice feels increasingly anachronistic. The time has come for a free vote in parliament on the issue.”

...

"However, other senior figures such as Michael Gove have expressed doubts about any change.

"Critics of an assisted dying law have also warned about the difficulties in defining who is eligible, the danger of people being pressured into a decision and subsequent attempts to widen the law.

"Alistair Thompson, a spokesperson for Care Not Killing, a group that opposes assisted dying, pointed to polling that suggested public support for assisted dying may have actually fallen since the mid-1990s.

"He also raised questions about the effects of the drugs used for the process in Oregon and said the law would be widened. “As we saw in the Netherlands and Belgium, limits on who qualifies for an assisted death have been swept away,” he said.

“At a time when we have seen how fragile our healthcare system is, how underfunding puts pressure on services, when up to one in four Britons who would benefit from palliative care aren’t receiving it, and when our nation’s hospices are facing a massive shortfall in their income, I would suggest this should be the focus of attention, rather than discussing again this dangerous and ideological policy.”

#########

And here's the NYT on the controversy in Canada:

Death by Doctor May Soon Be Available for the Mentally Ill in Canada. The country is divided over a law that would allow patients suffering from mental health illnesses to apply for assisted death.  By Vjosa Isai  Dec. 27, 2023

"Canada already has one of the most liberal assisted death laws in the world, offering the practice to terminally and chronically ill Canadians.

"But under a law scheduled to take effect in March assisted dying would also become accessible to people whose only medical condition is mental illness, making Canada one of about half a dozen countries to permit the procedure for that category of people.

...

"There is still uncertainty and debate over whether assisted death will become available to the mentally ill early next year as scheduled. Amid concerns over how to implement it, Parliament has delayed putting it into place for the past three years and could delay it again."

Market Design in El Mercurio--Chile's oldest newspaper

Last Tuesday, in Chile I was interviewed by Eduardo Olivares, the editor for Economics and Business of El Mercurio,  which published the interview yesterday. We talked for an hour about market design generally, about how markets work when they're working well or working badly, and we spoke about school choice (where Chile is a leader) and transplantation (where it is not). The interview is behind a paywall, but below are some extracts (retranslated back into English via Google Translate).

On markets generally:

—Many people ask that “markets be free,” as has recently happened in Argentina. Should they be free?

“That's a complicated question. Markets should be free to function well, but they need conditions that allow them to function well. Having a free market does not necessarily mean a market without rules. A wheel can spin freely because it has a well-greased axle and bearings. A wheel by itself cannot turn very well, and the same goes for the market.”

—Who puts the oil in the wheel gears?

“That's the job of market design. Part of what makes markets work well are good market rules. The government has a role in regulating markets, concerning property rights and things like that. But on another level, entrepreneurs do things. Here in Santiago I [can]... call an Uber using the same app and rules I use in California. Uber is a marketplace for passengers and drivers. The rules can be made by both private organizations and the government.”

On prices:

—Do prices matter?

"A lot. “Prices are important to help allocate scarce resources, but also to make them less scarce.”

...

—When do they not matter?

“Let me start with when they matter a lot: in commodity markets. If you want to buy commodities, price is really the only thing that's happening. But when 'El Mercurio' wants to hire journalists, it doesn't limit itself to offering a salary: it wants it to be a good job, with special reporters. Price is important, but in other markets other things are also important. When you get a new job, the first question your friends ask you is not what the salary is, but who you work for.”

On school choice:

“Most markets are not commodity markets... In some markets we don't like prices to work at all. One of the places where Chile is a leader in market design is school choice: how people are assigned to schools and Chile has done a lot of work on this, although mainly for public schools.”

—What do you know about this system in Chile?

“Not long ago, before there was centralized and widespread school choice in Chile, there were the usual problems with decentralized school choice; That is, parents had to get up early to get in line, and they had a difficult process to register their children.”

—The new system has been criticized. Some claim it caused more people to choose the private system over the public school system. Isn't it similar to what is happening in New York, for example?

“There is something to that. In New York and Boston we also have a system that we call charter schools: free access schools, but organized by private entities, even if they are municipal schools. And they also have different standards. School choice is important, but it does not solve the problems of poverty or income inequality. Now, one of the reasons we have school choice in the United States and perhaps also in Chile is because we think that, otherwise, there is a danger that the poor will be condemned to send their children to poor schools. .

—Has there been any successful case in which parents can honestly rank the order of preference for the school they want their children to go to?

“In Chile, procedures are used that [make it] what game  theorists call a dominant strategy to express true preferences. The [remaining] problem is not in creating systems that make it safe to express preferences, but in distributing the information so that people can form preferences sensibly. In the United States, the hardest families to reach are those who don't speak English at home, so it's sometimes difficult to communicate with them. And different families have different feelings about what kind of schools their children should attend.”

“The benefits of school choice come from the fact that some schools may be high quality for some children but not for others, so we would like children to attend the schools that are best quality for them.”

On kidneys:

—You are famous for the proposal that allowed the “kidney exchange.” Years after the first experience, what do you see now in this type of market?

“Kidney exchange is working quite well in the US, but it works especially well for patients who are not too difficult to match. Even in the US, a fairly large country, we have patients who are so difficult to match that we have trouble finding a kidney for them.”

—And in other countries?

“Smaller countries, with 20 million inhabitants, like Chile, would benefit if we could make national borders not so important. When we look at transplants per million inhabitants, Chile is in the middle of the world. But since it is a small country, when the total number of transplants performed is analyzed, Chile has very few. Kidneys are obtained from both deceased and living donors. In Chile, as in much of the world, the majority of transplants come from deceased donors. Kidney exchange would allow more transplants to come from living donors ... “Twenty million is not enough, so it would be very good to see in South America an exchange of kidneys that can cross between countries, which is not so easy to do.”

Equality of exchange and the role of perceptions

“One of the things that worries people when talking about transplants is that [they think it might be] a medical process that exploits the poor. Of course, the thing about kidney exchange is that each pair of people gives one kidney and receives one kidney. It is very egalitarian. I think kidney exchange is a good place to combat this notion that transplantation is like trafficking,” he notes.

—Notions, perceptions are very important. Many people think of “exchange” as the exchange of securities in the stock market.

“That's right, but not every exchange involves money. One of the discussions about money in the world that is taking place in the European Union at the moment is about payment to blood plasma donors. In the EU, only Germany, Austria, the Czech Republic and Hungary pay blood plasma donors. And those are the only EU countries that have as much blood plasma as they need. The others have to import everything, and they do it from the United States. The United States is the Saudi Arabia of blood plasma (…) The World Health Organization says that plasma must be obtained in each country, and from unpaid donors. You have to be self-sufficient... an economist finds that a little funny. Blood is a matter of life and death. “When there is a pandemic, we do not tell countries that they must be self-sufficient [in vaccines].”

—When we talk about these exchanges of blood plasma and kidneys, school choice systems, we are talking about the same idea: coincident or paired markets. But the concept of the market has been so questioned, especially by some political groups, for so long...

"It's true. Now,  kidney exchange is special because money doesn't change hands. Money changes hands to get medical care, you have to pay doctors, nurses and hospitals. But we are not talking about buying kidneys from donors, but rather that, at the patient level, each pair receives a kidney and donates a kidney. It is radically egalitarian. Many people who think about markets may not think of it as a market, but I think that's a mistake. Many markets are not just about money… we would worry much less about markets if income and wealth inequality did not exist. “What worries us about markets is that some people are poor and some people are rich, and markets seem like a way to give the rich an advantage.”

“There is no doubt that being rich is better than being poor. The real question is what do we do to alleviate poverty. Making it invisible is not the same as alleviating it. One of the reasons I think many countries don't allow blood and plasma donors to be paid is because they don't like the way that looks. It reminds them that some people would like to get some money and would donate blood for it.”

Apparently, according to the caption, I'm "affable and smiling" (although not in this picture:)

I was in Chile to participate in what turned out to be a wonderful workshop on market design at the University of Chile, organized by Itai Ashlagi, José Correa, and Juan Escobar.

Some related recent posts:

Saturday, December 23, 2023

Market design: some press accounts in Chile

Wednesday, December 20, 2023

Public lecture today at the Casa Central de la Universidad de Chile:“Quién obtiene qué y por qué: La nueva economía del diseño de mercados”

Sunday, December 17, 2023

Market Design Workshop 18 - 20 December 2023 Santiago, Chile

Saturday, November 4, 2023

The EU proposes strengthening bans on compensating donors of Substances of Human Origin (SoHOs)--op-ed in VoxEU by Ockenfels and Roth

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Update (Dec. 27): Here's an account of my closing public talk from the U. Chile's Center for Mathematical Modeling, one of the hosts of the market design workshop.

Alvin Roth: “Markets are human artifacts, they are tools that we build ourselves to help us”.

And here's a picture at the close, including some of those mentioned above: At my far left in the picture is José Correa,  who in addition to his other roles is Vice Rector for Information Technologies. Next to him is Alejandra Mizala, prorrector (provost) of the university.  Next to her (immediately to my left) is Rector of the University of Chile, Rosa Devés, and immediately to my right is market designer and director of the MIPP Millennium Institute, Juan Escobar. Next to him is Héctor Ramírez, director of the Center for Mathematical Modeling. And next to him (at my far right) is professor Rafael Epstein who (along with Correa, Escobar, and his daughter Natalie Epstein) has been involved with school choice in Chile, among other things.

Auctioning fresh fish, quickly. by Hafalir, Kesten, Sherstyuk and Tao

 Here's an auction for when leisurely price discovery is costly.

When Speed is of Essence: Perishable Goods Auctions by Isa Hafalir, , Onur Kesten, , Katerina Sherstyuk, , Cong Tao.  December 2023

Abstract: We study a remarkable auction used in several fish markets around the world, notably in Honolulu and Sydney, whereby high-quality fish are sold fast through a hybrid auction that combines the Dutch and the English formats in one auction. Speedy sales are of essence for these perishable goods. Our theoretical model incorporating “time costs” demonstrates that such Honolulu-Sydney auction is preferred by the auctioneer over the Dutch auction when there are few bidders or when bidders have high time costs. Our laboratory experiments confirm that with a small number of bidders, Honolulu-Sydney auctions are significantly faster than Dutch auctions. Bidders overbid in Dutch, benefiting the auctioneer, but bidding approaches risk-neutral predictions as time costs increase. Bidders fare better in the Honolulu-Sydney format compared to Dutch across all treatments. We further observe bidder attempts to tacitly lower prices in Honolulu-Sydney auctions, substantiating existing concerns about pricing in some fish markets.

From the introduction:

"We explore a seemingly peculiar and largely under-studied dynamic auction format employed in several perishable goods markets around the world, such as in Honolulu and Sydney fish markets. In this auction, the auctioneer sets a starting price that is neither as low as in an English auction nor as high as in a Dutch, but at a middle ground, allowing bidders to bid at the onset (either by raising their hands during a verbal Honolulu auction or by clicking a button during an automated Sydney clock auction). If at least one bidder bids, the auction proceeds as an English (ascending price) auction. If there is no initial interest, the price begins to drop, as in a Dutch (descending price) auction. However, once a bidder bids, other bidders are allowed to counter-bid, potentially reverting the auction to an English auction. Although this auction format has been documented (Feldman, 2006) and is apparently employed in a number of fish markets in France and Denmark (Guillotreau and Jim´enez-Toribio, 2006; Laks´a and Marszalec, 2020) as well as in Honolulu and Sydney,2 little is understood about the reasons for its emergence and its advantages over more traditional descending-only Dutch auction that is also commonly used for perishable goods."

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Update:

Joshua Gans points me to this related paper in Management Science

Channel Auctions

Eduardo M. Azevedo , David M. Pennock, Bo Waggoner , E. Glen Weyl 

Published Online:4 Mar 2020 https://doi.org/10.1287/mnsc.2019.3487

Abstract

Standard auction formats feature either an upper bound on the equilibrium price that descends over time (as in the Dutch auction) or a lower bound on the equilibrium price that ascends over time (as in the English auction). We show that in some settings with costly information acquisition, auctions featuring both (viz., a narrowing channel of prices) outperform the standard formats. This Channel auction preserves some of benefits of both the English (truthful revelation) and Dutch (security for necessary information acquisition) auctions. Natural applications include housing, online auction sites like eBay, recording transactions on blockchains, and spectrum rights.

This paper was accepted by Joshua Gans, business strategy.

Kidney exchange as an innovation in organization

Here's a two minute video summary of an address I gave in 2014, just noticed now, which seems still pretty up to date. A lot of progress has been made through new ways of organizing  transplants, and there's plenty of organizational innovation still needed.

State-of-the-Art Address - World Transplant Congress 2014

   

 

https://www.youtube.com/watch?v=nJ9wXN03mpE

Market design: some press accounts in Chile

 The recent market design workshop in Santiago was pretty thrilling, and I was asked to give some interviews and a public talk, which have now generated some press about market design.

Here's a post-talk story:

"Los mercados son artefactos humanos, son herramientas que construimos nosotros mismos para que nos ayuden" ["Markets are human artifacts, they are tools that we build ourselves to help us"]

Google translate does a good job, and the piece includes a video of my talk (starting at around minute 20:45 after a long wait between the start of live streaming and the actual start of the talk...). You can hear the talk in Spanish (only), the acute listener will notice that it's given in a woman's voice...)

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Another article also has some pictures of the audience, and as this was the last act of the market design workshop, readers of this blog may recognize some people in one of the photos.

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Some earlier stories were published after I was interviewed during the workshop also in Spanish, also accessible by G translate):

“An international collaboration in South America for kidney transplantation would be useful”

Alvin Roth and lack of equity in the Chilean economic system: “Attention should focus on alleviating and abolishing poverty”

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After the workshop we explored Chile's Atacama with some colleagues including Itai Ashlagi and Ravi Jagadeesan:

Decline and decay of nudges

 Here's the latest paper to suggest that small "nudges" can have much less of a lasting effect than was initially thought.

The Semblance of Success in Nudging Consumers to Pay Down Credit Card Debt  by Benedict Guttman-Kenney, Paul D. Adams, Stefan Hunt, David Laibson, Neil Stewart & Jesse Leary, NBER WORKING PAPER 31926 DOI 10.3386/w31926  December 2023

Abstract: We run a field experiment and a survey experiment to study an active choice nudge. Our nudge is designed to reduce the anchoring of credit card payments to the minimum payment. In our field experiment, the nudge reduces enrollment in Autopaying the minimum from 36.9% to 9.6%. However, the nudge does not reduce credit card debt after seven payment cycles. Nudged cardholders tend to choose Autopay amounts that are only slightly higher than the minimum payment. The nudge lowers Autopay enrollment resulting in increasing missed payments. Finally, the nudge reduces manual payments by cardholders enrolled in Autopay.

Cash for kidneys report in the Telegraph

 The Telegraph has this story, by Samuel Lovett, Nandi Theint,  and Nicola Smith. For some reason I can't copy the headline, but the URL is pretty informative: https://www.telegraph.co.uk/global-health/science-and-disease/kidney-organ-trafficking-scandal-private-healthcare-india-myanmar/   3 December 2023 • 9:00am

"One of the world’s biggest private hospital groups is embroiled in a ‘cash for kidneys’ racket in which impoverished people from Myanmar are being enticed to sell their organs for profit.

"India’s Apollo Hospitals, a multi-billion dollar company with facilities across Asia, boasts that it conducts more than 1,200 transplants a year, with wealthy patients arriving for operations from all over the world, including the UK.

"Paying for organs is illegal in India, as it is across most of the world, but a Telegraph investigation has revealed that desperate young villagers from Myanmar are being flown to Apollo’s prestigious Delhi hospital and paid to donate their kidneys to rich Burmese patients.

“It’s big business,” one of the racket’s ‘agents’ told an undercover Telegraph reporter. Those involved “work together to get around the obstacles between the two governments,” she added. The hospital “asks the official questions. And on this side they tell the official lies.”

"The scam involves the elaborate forging of identity documents and staging of ‘family’ photographs to present donors as the relatives of would-be patients. Under Indian and Burmese laws, a patient cannot receive an organ donation from a stranger in normal circumstances.

"Apollo Hospitals said it was “completely shocked” by the Telegraph’s findings and would launch an internal investigation. “Any suggestion of our wilful complicity or implicit sanctioning of any illegal activities relating to organ transplants is wholly denied,” it added.

Public lecture today at the Casa Central de la Universidad de Chile:“Quién obtiene qué y por qué: La nueva economía del diseño de mercados”

 Alvin Roth, Premio Nobel de Economía, dictará charla magistral en Casa Central de la Universidad de Chile [Alvin Roth, Nobel Prize winner in Economics, will give a keynote talk at the Central House of the University of Chile]

“Who gets what and why: The new economics of market design” is the name of the talk that Alvin Roth, 2012 Nobel Prize winner in Economics, will give on Wednesday, December 20, at 12:00 p.m., in the Hall of Honor of the Central House of the University of Chile.

The activity is organized by the Millennium Institute for Research on Market Imperfections and Public Policies (MIPP), the Center for Mathematical Modeling (CMM) of the University of Chile and the Ring Project “Information and Computing in Market Design” and in it Roth will speak about his renowned book in which he explains about the frequent “matching” markets, in which money is not a determining factor.

The talk will be in English and will have simultaneous translation into Spanish. [La charla será en inglés y contará con traducción simultánea al español.]

The talk will be in the Salón de Honor de Casa Central, which sounds like it will be an impressive venue.

Experimental economics, in Economics textbooks

 Here's a paper surveying introductory economics textbooks for statements (or lack of statements) about experimental economics, over fifty years. (That's just about the period  in which I've been doing experiments, since starting a long collaboration with the late Keith Murnighan  when we were both new assistant professors at the U of I in 1974, although in fact the article covers 1970-2019.)  Note from the figure below that textbooks lag not just the progress of science, but even its widespread recognition: Kahneman and Smith won their Nobel for experiments in 2002.

Changing perceptions about experimentation in economics: 50 years of evidence from principles textbooks, by Saileshsingh Gunessee and Tom Lane, Journal of Behavioral and Experimental Economics, Volume 107, December 2023.

"Abstract: Traditionally, economists often argued experiments play little or no useful role in our science. This paper employs a novel approach to track the historical evolution of this doctrine from 1970 to 2019, by constructing a dataset of 278 introductory economics textbooks. Quantitative and qualitative analysis shows that anti-experimental views were dominant and largely unchanged until 2000, but there has since been a trend towards textbooks making positive statements about experimentation. However, remarks that economic experiments are impossible have been (almost) eliminated only in the last decade, evidencing a sluggish change in perceptions. Supplementary interviews with key textbook authors confirm the historical trend of increased enthusiasm towards experiments, and suggest they are now accepted within the economic mainstream. Our findings hold important implications for how the empirical methodology of economics is understood by practitioners and students."

Based on the introductory chapter of each textbook, they "classified the book's position on economic experiments into one of five categories:

"1. The book's introduction states that doing experiments in economics is impossible, or that economic experiments are never done (hereafter, Impossible/Not Done).

"2. The book's introduction states that doing experiments in economics is difficult, or that economic experiments are rare (hereafter, Difficult/Rare).

"3. The book's introduction states that experiments are done in economics, or refers to economic experiments without mentioning their being rare or any difficulties involved in conducting them (hereafter, Done).

"4. The book's introduction does not mention experimentation in economics (hereafter, No Mention).9

"5. The book does not contain an introductory section (hereafter, No Intro)."

Algorithmic Mechanism Design With Investment, by Akbarpour, Kominers, Li, Li, and Milgrom,

 Mechanisms that are computationally complex may require approximation in implementation, which can change the incentive properties of the exact mechanism.   But progress can be made...

Algorithmic Mechanism Design With Investment, by Mohammad Akbarpour, Scott Duke Kominers, Kevin Michael Li, Shengwu Li, Paul Milgrom, Econometrica, First published: 07 December 2023, https://doi.org/10.3982/ECTA19559

Abstract: We study the investment incentives created by truthful mechanisms that allocate resources using approximation algorithms. Some approximation algorithms guarantee nearly 100% of the optimal welfare in the allocation problem but guarantee nothing when accounting for investment incentives. An algorithm's allocative and investment guarantees coincide if and only if its confirming negative externalities are sufficiently small. We introduce fast approximation algorithms for the knapsack problem that have no confirming negative externalities and guarantees close to 100% for both allocation and investment.

From the introduction:

"Approximation algorithms can be combined with pricing rules to produce truthful mechanisms, provided that the algorithm is “monotone” (Lavi, Mu'Alem, and Nisan (2003)). In this paper, we study the ex ante investment incentives created by such mechanisms.

"Suppose that one bidder can make a costly investment to change its value before participating in a truthful mechanism. As an initial result, we show that all truthful mechanisms using the same allocation algorithm entail the same investment incentives, so we can regard the investment incentives as properties of the algorithm itself.

"If an allocation algorithm exactly maximizes total welfare, then the corresponding truthful mechanism is a Vickrey–Clarke–Groves (VCG) mechanism. For VCG mechanisms, any single bidder's investment is profitable if and only it improves total welfare (Rogerson (1992)). In this respect, the VCG mechanisms are essentially unique. We find that a truthful mechanism aligns a bidder's investment incentives with welfare maximization only if there is some set of allocations such that, for generic valuation profiles, its allocation algorithm exactly maximizes welfare over that set. Many practical approximation algorithms do not have this structure and, as a result, lack efficient investment incentives.

"One might also hope that if an allocation algorithm approximately maximizes total welfare, then it generates approximately efficient investment incentives—but we show to the contrary that arbitrarily good approximations can have arbitrarily bad investment guarantees. To make this statement precise, we evaluate an algorithm's performance on any particular instance by the welfare it achieves divided by the maximum welfare. We refer to the worst-case ratio over all instances when values are exogenous as the allocative guarantee, and the worst-case ratio when one bidder's ex ante investment endogenously determines its value as the investment guarantee.1 (The investment guarantee measures welfare net of investment costs.)

"Because the investment guarantee is a worst case over instances and over investment technologies, it is never more than the allocative guarantee. We characterize the algorithms for which the allocative and investment guarantees are equal, and apply those results to evaluate and improve upon standard approximation algorithms."

Market Design Workshop 18 - 20 December 2023 Santiago, Chile

 Market Design Workshop  18 - 20 December 2023  Santiago, Chile

Here is the list of participants, and the program. 

I'll be speaking on Monday and then again on Wednesday.

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Unrest and then Covid delayed this conference:

Tuesday, December 17, 2019

Market design workshop in Santiago, SUSPENDED

Politics can certainly get in the way of economics, even academic economics, as it turns out.  The organizers of a conference on matching and market design that I had planned to attend prudently decided  several weeks ago to postpone it, in light of the street demonstrations taking place in Chile.