{Epistemic Status: Just reviewing my thoughts on a book and its subject matter. I have done some independent study of the field (and have a degree in economics), but I did not try to check my impressions rigorously. Much or maybe most of what I say is extrapolation by me, rather than being in the book itself.}

I have recently finished the book Who Gets What and Why, by Alvin Roth and found it quite intellectually stimulating. The book itself was not as systematic as I originally hoped, but that was almost better since it forced me to reconstruct definitions and patterns in ways that made sense to me. Below I have included my thoughts on the first topic of the book, matching markets. The second topic, mechanism design, will appear in a later post.

What Are Matching Markets

The first model of a market that economics students learn is the perfectly competitive model. This is exceptionally useful to understand, but it can also limit the scope of what people consider as markets. In particular, this model emphasizes two characteristics of a market, price and quantity, neither of which are explicitly required to model a market. Matching markets include markets where there can be both no prices and no changes in quantity (i.e. no supply or demand curves).^[1] They are also more than academic curiosities since they describe everything from dating markets to job markets to school admissions.

You can use supply and demand to get some insight into how the market for romantic relationships works, but if you start taking it too seriously then it stops making sense. For example: Is there a single market price? Are the surpluses of each side directly opposed? Do people always prefer lower ‘prices’? Is a person with a higher willingness-to-pay always going to do better?

The primary characteristic of a matching market is that both sides of an exchange need to actively choose each other in order for it to go through. How does this actually differ from a standard (commodities) market? The key distinction is that each exchange can now be dependent on the outcome of another exchange.

For example, imagine a group of tennis players that want to enter a doubles tournament. We can imagine a player Alice who wants to team up with Bob who wants to team up with Charlie. Since Bob would prefer Charlie to Alice, Alice’s ability to team up with Bob is determined by whether Charlie will choos...

Posts

Wikitag Contributions

Comments