REINVENTI

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STRUCTURE

1. Book Review2. Information Asymmetry3. Data

INTRODUCTION

“What makes a successful market?”

• Non-technical primer for Market Design

• Changing role of the economist

THESIS

Markets sometimes suffer from design failures…

And there is no universal solution!

A WELL DESIGNED MARKET?

• Information Flows• Property Rights Protected• Trust• Externalities Curtailed• Competition

SHAPING INCENTIVES

Pharmaceutical Industry• “He who can’t pay dies”• Publicly funded research

DECENTRALIZATION: AN EXAMPLE

Shock Therapy• China• Russia• New Zealand

JOHN MCMILLAN

• John B. Lovelace Professor• Stanford University• Microeconomics

& Game Theory

POLITICAL ORIENTATION

“Slightly left of center”• Elements of central planning• Intervention on case by case basis• Goal: Decentralization

LITERATURE REVIEW

Information Asymmetry• Let’s purchase a laptop

SO YOU DO SOME RESEARCH…

AND YOU DO MORE RESEARCH…

FINALLY YOU MAKE A DECISION…

NOW TO FIND IT

• Comparison shopping• Online Shopping? • Brick and Mortar?

LET’S REVIEW…

Imperfect Information Two Types of Costs

Search Costs “What laptop should I buy?”

Acquisition Costs“Where can I find this laptop?”

THE PROBLEM WITH COSTS

Deters consumers from doing research• I got ripped off!• Oh no, I bought a defective laptop!

MSRP: $2000

Really?

LITERATURE REVIEW

Problems caused by information asymmetry?

Solutions to problems?

ONLINE MARKETS

The Winner’s Curse on eBay?• Jin and Kato (2002)• Bajari and Hortascu (2004)• Bapna et. al (2004)

LABOR MARKETS

Market Unraveling• Job offers made earlier every year• Medical Market

LABOR MARKETS: CLEARINGHOUSESGale and Shapley (1962)• “Deferred Acceptance Algorithm”

National Residency Matching Program

• Roth (1991): Stability is the key

STABLE MARRIAGE

LABOR MARKETS: SIGNALING

Michael Spence (1973)• Job market signaling

Lee and Niederle (2011)• Propose with a rose?

SIGNALING MECHANISMS

American Economic Association• Coles et. Al (2010)

DATA PROJECT

Source: RegData• “How does industry regulation affect

productivity and output?”

REGULATION OVER TIME

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

3,000.00

3,200.00

3,400.00

3,600.00

3,800.00

4,000.00

4,200.00

4,400.00

62

64

66

68

70

72

74

MeanMedian

INDUSTRY: WHOLESALE TRADE

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

40,000

140,000

240,000

340,000

440,000

540,000

640,000

740,000

840,000

940,000

1,040,000

0

20

40

60

80

100

120

140

160

GDP(Wholesale Trade)Reg(Wholesale Trade)

INDUSTRY: MINING

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

GDP(Mining)Reg(Mining)

INDUSTRY: TRANSPORTATION

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

3100

3200

3300

3400

3500

3600

3700

3800

3900

4000

4100

GDP(Trans)Reg(Trans)

REGRESSION RESULTS: GDP

Coeff T-Statistic P-Value R-Sq

Mining 65.4 2.584 0.0216 0.323

Wholesale Trade

-0.00936 -1.977 0.0680 0.218

Transportation -246.8 -2.102 0.0541 0.489

+

REGRESSION RESULTS: PRODUCTIVITY

Coeff T-Statistic P-Value R-sq

Mining -0.0008 -3.33 0.005 0.442

Wholesale -0.1577 -0.53 0.602 0.019

Transportation -0.0374 -2.82 0.013 0.361

+

CONCLUSIONS

Market Design: Case by case• McMillan• Literature Review• Data