The 2012 Nobel Prize in Economics (aka The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2012) was awarded today to Alvin E. Roth and Lloyd S. Shapley for their contributions to the “theory of stable allocations and the practice of market design.”
It’s called market design. But the argument I made just last year was that what Roth and others have been doing (based on Shapley’s earlier work in cooperative game theory) is attempting to design—for doctors, schools, kidneys, and so on—something other than markets. The nonmarket, matching mechanisms they propose are useful precisely when markets fail or don’t exist, which is often.
One way of understanding this year’s Nobel Prize in Economics, then, is as a signal to mainstream economists that it’s time to give up the idea of “the market” and start thinking about the existence (now and in the past) and the possibility (in the future) of a wide variety of both market and nonmarket mechanisms for exchanging goods and services and coordinating decisionmaking.
[...] When markets fail [...]
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[...] that it isn’t. Not when neoclassical economics, for all the attention to market (and, in my view, nonmarket) design, is still based on a theory of markets in which money plays no significant role (and [...]