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An invitation to market design

Author

Listed:
  • Kominers, Scott Duke
  • Teytelboym, Alexander
  • Crawford, Vincent P

Abstract

Market design seeks to translate economic theory and analysis into practical solutions to real-world problems. By redesigning both the rules that guide market transactions and the infrastructure that enables those transactions to take place, market designers can address a broad range of market failures. In this paper, we illustrate the process and power of market design through three examples: the design of medical residency matching programmes; a scrip system to allocate food donations to food banks; and the recent 'Incentive Auction' that reallocated wireless spectrum from television broadcasters to telecoms. Our lead examples show how effective market design can encourage participation, reduce gaming, and aggregate information, in order to improve liquidity, efficiency, and equity in markets. We also discuss a number of fruitful applications of market design in other areas of economic and public policy.

Suggested Citation

  • Kominers, Scott Duke & Teytelboym, Alexander & Crawford, Vincent P, 2017. "An invitation to market design," University of California at San Diego, Economics Working Paper Series qt3xp2110t, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt3xp2110t
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    Citations

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    Cited by:

    1. Sanna Laksá & Daniel Marszalec & Alexander Teytelboym, 2018. "Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions," CIRJE F-Series CIRJE-F-1096, CIRJE, Faculty of Economics, University of Tokyo.
    2. Alexander Teytelboym, 2019. "Natural capital market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(1), pages 138-161.
    3. Doğan, Battal & Imamura, Kenzo & Yenmez, M. Bumin, 2025. "Market design with deferred acceptance: A recipe for characterizations," Journal of Economic Theory, Elsevier, vol. 228(C).
    4. Matteo Aquilina & Eric Budish & Peter O’Neill, 2022. "Quantifying the High-Frequency Trading “Arms Race”," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 493-564.
    5. Yoonyoung Cho & Soohyung Lee, 2021. "How to Improve Worker–Firm Matching: Evidence from a Temporary Foreign Worker Market," Korean Economic Review, Korean Economic Association, vol. 37, pages 419-454.
    6. Justin Hadad & Alexander Teytelboym, 2022. "Improving refugee resettlement: insights from market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 38(3), pages 434-448.
    7. Aaron Barkley, 2023. "The Human Cost of Collusion: Health Effects of a Mexican Insulin Cartel," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 1865-1904.
    8. Thomas Pownall & Iain Soutar & Catherine Mitchell, 2021. "Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources," Energies, MDPI, vol. 14(4), pages 1-26, February.
    9. Scott Duke Kominers, 2024. "Respect for Improvements and Comparative Statics in Matching Markets," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 9(1), pages 83-104, December.
    10. Marco LiCalzi, 2022. "Bipartite choices," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(2), pages 551-568, December.
    11. Pal, Debdatta, 2024. "Scarcity and market design: How effective matching can promote the peer-to-peer sharing economy," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    12. van Basshuysen, Philippe, 2023. "Markets, market algorithms, and algorithmic bias," LSE Research Online Documents on Economics 115694, London School of Economics and Political Science, LSE Library.
    13. Li, Yuanxiang John & Hoffman, Elizabeth, 2023. "Designing an incentive mechanism for information security policy compliance: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 138-159.
    14. Eric Budish & Judd B. Kessler, 2022. "Can Market Participants Report Their Preferences Accurately (Enough)?," Management Science, INFORMS, vol. 68(2), pages 1107-1130, February.
    15. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    16. Gian Caspari & Manshu Khanna, 2025. "Nonstandard Choice In Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 757-786, May.
    17. Pan-Yang Su & Yi Ju & Scott Moura & Shankar Sastry, 2025. "Two-Stage Mechanism Design for Electric Vehicle Charging with Day-Ahead Reservations," Papers 2509.00270, arXiv.org.
    18. Jindal, Abhinav & Puri, Shivam & Shrimali, Gireesh, 2025. "Designing a prospective carbon trading market in India: Key properties, enabling features and linkages," Applied Energy, Elsevier, vol. 386(C).

    More about this item

    Keywords

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    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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