reinventing the bazaar: a book review
TRANSCRIPT
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REINVENTI
NG THE
BAZAAR
SE
ME
ST
ER
PR
OJ E
CT :
J OS
HU
A C
HU
A
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STRUCTURE
1. Book Review2. Information Asymmetry3. Data
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INTRODUCTION
“What makes a successful market?”
• Non-technical primer for Market Design
• Changing role of the economist
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THESIS
Markets sometimes suffer from design failures…
And there is no universal solution!
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A WELL DESIGNED MARKET?
• Information Flows• Property Rights Protected• Trust• Externalities Curtailed• Competition
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SHAPING INCENTIVES
Pharmaceutical Industry• “He who can’t pay dies”• Publicly funded research
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DECENTRALIZATION: AN EXAMPLE
Shock Therapy• China• Russia• New Zealand
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JOHN MCMILLAN
• John B. Lovelace Professor• Stanford University• Microeconomics
& Game Theory
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POLITICAL ORIENTATION
“Slightly left of center”• Elements of central planning• Intervention on case by case basis• Goal: Decentralization
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LITERATURE REVIEW
Information Asymmetry• Let’s purchase a laptop
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SO YOU DO SOME RESEARCH…
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AND YOU DO MORE RESEARCH…
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FINALLY YOU MAKE A DECISION…
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NOW TO FIND IT
• Comparison shopping• Online Shopping? • Brick and Mortar?
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LET’S REVIEW…
Imperfect Information Two Types of Costs
Search Costs “What laptop should I buy?”
Acquisition Costs“Where can I find this laptop?”
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THE PROBLEM WITH COSTS
Deters consumers from doing research• I got ripped off!• Oh no, I bought a defective laptop!
MSRP: $2000
Really?
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LITERATURE REVIEW
Problems caused by information asymmetry?
Solutions to problems?
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ONLINE MARKETS
The Winner’s Curse on eBay?• Jin and Kato (2002)• Bajari and Hortascu (2004)• Bapna et. al (2004)
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LABOR MARKETS
Market Unraveling• Job offers made earlier every year• Medical Market
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LABOR MARKETS: CLEARINGHOUSESGale and Shapley (1962)• “Deferred Acceptance Algorithm”
National Residency Matching Program
• Roth (1991): Stability is the key
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STABLE MARRIAGE
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LABOR MARKETS: SIGNALING
Michael Spence (1973)• Job market signaling
Lee and Niederle (2011)• Propose with a rose?
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SIGNALING MECHANISMS
American Economic Association• Coles et. Al (2010)
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DATA PROJECT
Source: RegData• “How does industry regulation affect
productivity and output?”
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REGULATION OVER TIME
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
3,000.00
3,200.00
3,400.00
3,600.00
3,800.00
4,000.00
4,200.00
4,400.00
62
64
66
68
70
72
74
MeanMedian
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INDUSTRY: WHOLESALE TRADE
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
40,000
140,000
240,000
340,000
440,000
540,000
640,000
740,000
840,000
940,000
1,040,000
0
20
40
60
80
100
120
140
160
GDP(Wholesale Trade)Reg(Wholesale Trade)
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INDUSTRY: MINING
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
GDP(Mining)Reg(Mining)
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INDUSTRY: TRANSPORTATION
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
3100
3200
3300
3400
3500
3600
3700
3800
3900
4000
4100
GDP(Trans)Reg(Trans)
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REGRESSION RESULTS: GDP
Coeff T-Statistic P-Value R-Sq
Mining 65.4 2.584 0.0216 0.323
Wholesale Trade
-0.00936 -1.977 0.0680 0.218
Transportation -246.8 -2.102 0.0541 0.489
+
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REGRESSION RESULTS: PRODUCTIVITY
Coeff T-Statistic P-Value R-sq
Mining -0.0008 -3.33 0.005 0.442
Wholesale -0.1577 -0.53 0.602 0.019
Transportation -0.0374 -2.82 0.013 0.361
+
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CONCLUSIONS
Market Design: Case by case• McMillan• Literature Review• Data