Paste your essay in here…A Review on “Who gets What and Why”
The book was written by a Nobel laureate Alvin Roth in 2016. It explains the market design, matching market and their structure with successful and unsuccessful examples. It remarkably examines at how those markets work and don't work, and how those markets differ from the market where “price” decides who gets what. Alvin Roth were awarded the Nobel Prize for the contribution that he did in market design and game theory. Aside from theoretical contributions to the field, he had a chance to implement these pioneering works to real life problems and created life-saving market designs such as kidney market design. Even though market design is quite hard to understand for outsiders or layman, Alvin Roth did a great job to explain such a topic for everybody to understand by providing his own experiences. As an economic-engineer, he shows how an economist can change the way the market works more efficiently from the engineering perspective. It is not an in-depth analysis of market design and does not touch the ethical issue(s) the way philosophers and ethicists study; however, it is fun to read and easy to understand the world of market design.
In a typical market, price is a good solution to buy and sell any good without considering the matching of buyers and sellers. Market price helps to match buyers with sellers. There are some types of markets that market price doesn't work as the way it is supposed to work. Kidney donation is one of those type of market where money cannot help to clear the market. Like kidney donation, hiring assistant professors is also a good example to illustrate those markets. In those type of markets, not only you have to choose who to trade with, but the person also has to choose you to trade with. It would be easy for the market to function if there would be only one possible candidate. However, it would not be a realistic example. Most of time, there are hundreds of possible candidates for an assistant professor position at a university as there are many possible positions to apply for a possible candidate as well. The book shows how to overcome matching problem with algorithms that make the market maximize the benefits of each side in the matching. The problem is how to increase or maximize the benefits, the problem is not the existence of those markets. It is also important to emphasize the difference of market design and central planning. Market design differs from central planning in a way that participants in the market design decide what they want. However, in central planning, central planner allocates resources and decides who wants to get what.
The book is divided into four parts. The first part is an introduction to market design and explains main desirable features for readers to make the rest of the book more understandable. Some of features were emphasized about the marketplace: thick, uncongested, safe. This book is mainly about the market failures in which market design fails to provide these features altogether. What makes a market thick is that it brings many participants to engage in the marketplace. However, it is not enough to be successful to achieve what is desired from a market design. It brings a congestion problem. As Alvin Roth describes, congestion is “the economic equivalent of traffic jam (page 9)”. It means that market does not serve each participant quickly enough since each transaction needs to be evaluated separately or individually. This may cause individuals fail to find their best matches, therefore, the market may fail to function properly. Participants may try to game the system in order to get what they want such as acting earlier. Any problem with congestion and thickness can make the market unsafe and complicated.
The second part and the third part show how marketplace fails and how to make marketplace thicker, faster and smarter with real-life examples, respectively. Alvin Roth did not approach the market failure by focusing the reason of failure like economists do, he approaches as an engineer by focusing on how to fix failures.
Sometimes the problem is not the way of market functions, other factors which are not involved in the transaction can be the reason of market failure which he calls “repugnant transaction (page 196)” in the book. This is the topic of fourth and the last part of the book. For example, horsemeat can be on the menu in Europe; however, it is not legal to sell horsemeat in California since it is thought to be repugnant to sell and eat horsemeat even though killing horse and having your dog to eat it is legal. Alvin Roth is interested in those repugnant transactions in which it is not clear why participants object to them. As in the horsemeat example, it is not obvious why people object to eating horsemeat. The other example he gave in the book worth to mention is same-sex marriage. The first state that make same-sex marriage legal is Massachusetts in 2004. After many discussions, it is legal for all states as a result of the ruling of the Supreme Court. It shows that repugnance can die over the time. He clearly made a distinction between negative externalities and repugnant transactions; however, he doesn't give any opinion as to whether or not those repugnant markets mentioned in the book are immoral. Rather than that, he shows how to fix these problems as an economic-engineer. For example, offering money can be thought as repugnant for some type of markets such as kidney market. He greatly solves this problem in kidney matching market by allowing participants to exchange their kidney for significant others rather than offering money.
Market design is relatively new field as a branch of economics. From kidney exchange market to marriage, from court system to public school enrollment, the field can offer great solutions to improve the market function. This book can open doors to market design field for non-academics and outsiders to this great field. It is not only easy to read, but also very intuitive and mind-opening.