海角大神

This year鈥檚 Nobel-ish prize in economics goes to聽Alvin Roth and Lloyd Shapley聽for research on 鈥渕atching methods鈥� and the resulting application to 鈥渕arket design.鈥� Briefly, this work deals with allocating resources in the absence of money and prices. Shapley applied noncooperative game theory to study the properties of different matching rules, and Roth studied various allocation rules to encourage 鈥渆fficient鈥� matching of actors or traders without using prices.

A good nontechnical summary of Roth鈥檚 work appears in a聽2009聽Harvard Business Review聽article. I discussed some of the issues in a聽2007 blog post. There I noted that while the very idea of 鈥渕arket design鈥� appears oxymoronic to those steeped in Menger, Mises, and Hayek, most of the work by Roth and colleagues deals with regulated markets, and can hence be interpreted as research in regulatory reform. More generally, none of this work deals with 鈥渄esigning markets鈥� in the broad sense, but rather with narrow, technical issues in administrative design. (E.g., who gets to propose the first trade? How many potential trades are considered in each round? Etc.) As one friend of mine remarked, 鈥渢his is one of the most boring prizes yet. At best it is a prize for some no doubt useful ideas in some small contexts of effecting coordination, but the real coordinating marvel is the market.鈥�

Note that the study of resource allocation without money and prices is part of praxeology, but not what Mises called聽catallactics, the study of market exchange with monetary calculation. Mises includes the economic analysis of socialism and war, and parts of Crusoe economics, as within the non-catallactic parts of praxeology, but there has been relatively little work by Austrians in this area. Some of my own research on resource allocation within the firm could fit, as does Mises鈥檚 analysis of聽bureaucracy.

Update: Is it economics? Two contrasting views.聽Steve Levitt:

[T]he first time I read Roth鈥檚 work in this area I had a strong reaction: this isn鈥檛 really economics. His applications, while based on general theories and principles, involve solutions that are highly dependent on the particular institutions and quirks of the setting he is studying.聽 In my youth, I was under the illusion that economic principles should be universal.聽 It was in part through my appreciation of Roth鈥檚 work, that I came to think very differently about the world and appreciate how critical it is to think about the specifics of the setting when coming up with solutions.

Charles Rowley:

The contributions of Roth and Shapley represent grunt work that can easily be provided by computer novices.聽 In environments where markets do not 鈥� or are not allowed 鈥� to function an infinite number of matching solutions vie for attention. Pick your preferred outcome and program the computer to deliver it.聽 Then sit back, hope that the Committee shares your prejudices, and wait for the 3 am call from Sweden!