Monday, October 15, 2012

Nobel Economics Prize Goes to Roth and Shapley

Their work allows for example for market solutions to be applied in cases where monetary transactions are traditionally considered to be unappealing, like in dating, marriage, education and organ donation. Levitt offers a good explanation of the contribution:
The type of economics [Roth] is best known for is what is called “Market Design.”  Essentially, it means bringing market-type thinking to areas in which historically non-market allocation mechanisms have been used.  A few examples of the areas Roth has explored are matching fledgling doctors to hospitals for their residency, matching students to public schools in school choice programs, and matching kidney donors with those who need a kidney. ... 
An example that we’ve written about here at the blog is Roth’s work on kidney transplants.  As much as economists think we should just have a market for kidneys, the rest of the world hasn’t quite caught up to that idea.  So Roth came up with a different scheme – one that involves barter — that takes into account the real-world constraints that people aren’t allowed to pay for kidneys. So instead he developed a clearinghouse for connecting chains of pairs in which there is both a person who needs a kidney transplant and a person willing to give one, but who is not a good match medically to donate to his or her loved one.  The key is that the potential donor is a good match for someone, just not for the loved one.  But, if you can make a chain in which it all balances out: each donor matches with someone willing to donate, then it works out for everyone.

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