Economics 980, Junior Seminar: Market Design

Professor Susan Athey

Course Home Page

Time and Place:  Note that this course was moved from Spring 2008 to Fall 2007.   In response to several requests, the time has been changed to Wednesday, 4-6.  It will meet in Littauer 219.

Official Course Description:  This course studies the design of organized markets, focusing on efficient organization and the incentives created by market rules. Applications include online auction markets, government auctions of natural resources, matching markets (students to classes or schools, medical residents to hospitals, kidneys to recipients), health care markets, and electricity markets.  The analysis relies on a mix of documenting the rules of real-world markets, game theoretic analysis, empirical analysis, and experimental work.

Economics Department Rules for Junior Seminars: All junior seminars require a major research paper; the prerequisites are intermediate microeconomic and macroeconomic theory, statistics, and econometrics (concurrent enrollment in econometrics is sufficient). Junior seminars therefore satisfy both the writing requirement and the theory prerequisite requirement for the Economics concentration. Each seminar is limited to 16 participants with preference given to honors Economics and Applied Math/Economics concentrators in their junior year. Enrollment will be determined by a lottery based on student preferences.

Class Format: Theory classes will be in lecture format.  Application classes will require reading and preparation for discussion, guided by discussion questions.  For most application classes, two students will prepare short presentations and/or take a leading role in the discussions.

Projects: Look here for some ideas for research projects.  This will be updated according to student interest.  Here is a handout with guidelines for the project and due dates.

Reading List: Look here for the reading list.  Only a subset of papers will be covered.

Overview:  Market design is an area of study that cuts across traditional field boundaries in economics.  It is broadly defined by the idea that in many cases, markets are or could be “designed” by entities such as governments or participants in the marketplace.   Economists focus on a number of issues when considering market design, including: efficient allocation, incentives for participants to reveal their information directly or indirectly to the mechanism, transparency, simplicity/computational complexity, vulnerability to manipulation or collusion among participants, revenue generation for the market designer (in some cases), distribution of resources.  In many examples, different market designs compete; in some cases, one market design becomes dominant, but in others, different markets with different rules co-exist. 

The examples below illustrate the kinds of markets and questions we will consider.  In almost all of these examples, academic economists have played a prominent role in shaping the rules of the markets.  We won't have time to consider all of these examples, and preferences from the class will be considered in determining topics. 

Example Platform Side 1 Side 2
Media TV, newspaper, internet publisher, Yellow pages Advertisers Readers
Credit Cards Visa, MC, AmEx Retailers Consumers
Video Games, OS Xbox, Windows Application Developers Users
Employment Employers Applicants
Dating Men Women
Online Auctions eBay Sellers Buyers
Real Estate MLS/Realtors Sellers Buyers

Rough Schedule:

This is subject to change.

9/19 Introduction to Market Design, and Overview of Potential Research Problems (1 class)

Part I: Auctions

9/26 Introduction to Game Theory and Auction Theory

 Read: McAfee, R.Preston and John McMillan. 1987. "Auctions and Bidding." Journal of Economic Literature, 25, 699-738.

10/3 Extensions to the Basic Auction Model

Read: Ausubel, Lawrence M. and Peter Cramton. 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, 2, 480-493.

10/10, 10/17, 10/24: Applications of Auctions (3 classes)  (Online, Timber, Spectrum)

Part II: Two-Sided Markets

10/31, 11/7, 11/14: Basic theory and applications (Media, Advertising Networks/Exchanges, Dating)

Part III: Matching Markets

11/21, 11/28 Basic theory (.5 class) and applications (1.5 classes)  (Residencies and Law Clerks, Kidney exchanges, School Choice)  (11/28 is guest lecture by Al Roth)

Part IV: Health Care Markets

12/5 Basic theory (1 class)

12/12 Comparing reform proposals (1 class) (David Cutler guest lecture)