Market design

Market design studies how rules and institutions shape the allocation of resources among participants. It applies economic theory to create systems that work well when ordinary markets do not.

Mechanism design: The study of rules that produce desired outcomes when participants have private information and pursue their own interests. It supplies the theoretical framework for designing markets with strategic participants.
National Resident Matching Program: The system that matches medical graduates in the United States to residency programs. Its matching procedure allocates training positions where applicants and programs have ranked preferences.
Alvin E. Roth: An American economist known for research on matching markets and practical market design. His work helped redesign residency matching and develop kidney exchange.
Central planning: An economic system in which a central authority directs production and resource allocation. Market design modifies decentralized exchange rather than replacing it with comprehensive administrative allocation.
Pareto efficiency: A state in which no change can make someone better off without making someone else worse off. It is one standard for judging whether an allocation wastes potential gains.
Matching market: A market that assigns participants to one another or to positions, often without prices clearing supply and demand. Many designed markets solve assignment problems rather than set prices.
School choice: Policies and procedures through which families select or are assigned to schools. Assignment rules address oversubscription, priorities, and families’ ranked preferences.
Lloyd Shapley: An American mathematician and economist whose work established foundational results in cooperative game theory and matching. His matching theory underlies major algorithms used in designed allocation systems.
Bilateral bargaining: Negotiation between two parties over the terms of a possible exchange. Designed rules can replace repeated one-to-one negotiation when many participants compete or interact.
Stable matching: A matching with no unmatched pair that would both prefer to leave their assigned partners for each other. Stability prevents mutually beneficial defections from undermining a matching system.

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