ECON-416 Market Design
Offered academic year 2017-2018
Market design studies how the allocation of resources can be improved when market failures occur. The 2012 Nobel Prize was awarded to Al Roth and Lloyd Shapley for their work on market design. The reach of market design has grown to include the assignment of students to public schools, medical residents to hospitals, and operating licenses to telecommunications companies. It also informs the design of internet auctions and financial markets. The course begins with a study of matching. We will examine why centralized schemes such as the National Resident Matching Program may be beneficial, and we will compare different schemes. We then turn to auctions. A seller may have a single item for sale or many. The items could be homogeneous or heterogeneous (e.g., a government may be selling identical treasury bonds or licenses to operate in heterogeneous markets). We will find the profit-maximizing and welfare-maximizing auction formats. The course will conclude with an examination of two-sided markets in which an intermediary brings together buyers and sellers. Notable examples include eBay, Uber and Airbnb. The course will involve theory and empirical work (case studies and results from regression analysis). Elements of game theory will also be introduced.
Prerequisites: ECON-101 or 103 & ECON-121 or permission of instructor
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