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Market Design in Large Worlds: The Example of Kidney Exchange

Posted Nov 27 2018

On November 8, Alvin Roth, 2012 Nobel Laureate in Economic Sciences and Craig and Susan McCaw Professor of Economics at Stanford University, delivered the 11th Annual Kenneth J. Arrow lecture titled “Market Design in Large Worlds: The Example of Kidney Exchange.” Parag Pathak, Jane Berkowitz Carlton and Dennis William Carlton Professor of Microeconomics at MIT, and Joseph E. Stiglitz, 2001 Nobel Laureate in Economic Sciences and University Professor at Columbia University, served as discussants. David Weinstein, Carl S. Shoup Professor of Japanese Economy at the Department of Economics at Columbia University, moderated the discussion.

Roth began his lecture with a short overview of game theory, differentiating cooperative games (which use coalitional models) from non-cooperative games (which use strategic models). He then described mechanism design where players have types—known only to themselves—and the designer tries to create a game with an equilibrium that yields the desired outcome.

Roth stated that marketplace design is not just mechanism design since it is the design of small institutions in a large environment. As such, potential marketplace participants may have bigger strategy sets in the larger environment. He described the redesign of clearinghouses for medical jobs and the creation of a centralized market clearing procedure to illustrate this point. Centralized market clearing procedures work well when matching is stable since the stability of matching is what entices people to join the marketplace and remain there. Discussing repugnant transactions, Roth stated that markets require social support since they are small places in a large environment and the behavior of non-participants can influence their success.

He then spoke about the accessibility of kidney transplants in the United States referring to the long wait-list for deceased-donor transplants. Due to difficulties in matching, it is often difficult to find compatible living donors for patients even when there may be loved ones willing to become donors. He then spoke of kidney exchanges or the facilitating of an exchange between two pairs of individuals where individuals are incompatible within one pair but are compatible with individuals in the other. These exchanges can become part of longer chains that extend across national borders as more people enter the marketplace. Roth stated that global kidney exchange is self-sustaining and presents an opportunity to reduce the weight of waiting patients by bringing in mutually beneficial exchanges.

He then touched upon some of the repugnance constraints associated with global kidney exchange including it sometimes being equated with organ trafficking. However, he stated that he remains encouraged by the support that it has received. He concluded by saying that in marketplace design—which involves designing mechanisms in larger environments—designers employ tools associated with both cooperative and non-cooperative game theory. He stated that if market design is to become an integral part of economics, it needs the involvement of more economists.

Parag Pathak began his remarks by stating that Alvin Roth’s work represents some of the most important things happening in economics today. He cited Kenneth J. Arrow when speaking of expanding the definition and role of markets in market design and stated that the theme applied by Professor Roth is applicable not just to kidney exchanges but to all kinds of market design. Pathak stated that it is important to consider how we measure the desirability of an outcome. He also observed that the expansion of a market that has been facilitated by market clearing mechanisms may not be desirable without a guiderail in place. Pathak concluded by highlighting the importance of monitoring and continuous evaluation when we think of the larger game.

Joseph E. Stiglitz began his remarks by commemorating Kenneth J. Arrow and introducing the lecture series. He stated, in agreement with Alvin Roth, that markets cannot be looked at in isolation outside of their larger environment. Speaking of repugnance, he called for a deeper understanding of repugnant transactions since different societies may have contrasting ideas of what is considered acceptable. He also pointed out that we cannot know where the norms within these larger environment come from and whether a norm that is widely held today will be as relevant tomorrow. The question of whether we should simply accept norms as unstated behavior or look deeper and seek to embed them in our own interaction is an important one. Stiglitz concluded his remarks by posing the question of how marketplaces emerge and asking how explicit we have to be in specifying the rules that govern them.

The event was co-organized by the Center on Global Economic Governance at Columbia SIPA, the Columbia Economics Program for Economic Research, and Columbia University Press.

— Aswathi Kizhekalam Puthenveettil, SIPA ’19