29 Oct 2015

Who Gets What -- and Why -- the review

Al Roth, economics nobelist, wrote this interesting and very readable book about the economics of markets (subtitle: "The New Economics of Matchmaking and Market Design").

The book isn't about the perfectly competitative or monopolistic markets taught in economics textbooks, but markets for (work)mates, body parts, seats in schools and so on.

The book's structure (markets everywhere, how markets fail, how to improve them, and the ethics of allowing them) takes the reader from zero beginnings to some serious insight. You will find yourself seeing markets everywhere once you get into this book. I won't go into details on the book's content, which was fascinating.

Consider the market for clothes. It's not exactly a commodity market, even if you ignore fashion. Think about the need to match people for height, weight or shoe size. Those mere facts can explain why its hard to find large shoes in South America or why Walmart has nothing that's really "small."

Put in Roth's words:
Markets, like languages, come in many varieties. Commodity markets are impersonal, but matching markets can be deeply personal, as personal as a job offer or a marriage proposal. And once you observe that matching is one of the major things that markets do, you realize that matching markets—markets in which prices don’t do all the work, and in which you care about whom you deal with—are everywhere, and at many of the most important junctures of our lives. -- p228
That's not to say that markets don't have problems. "Thin" markets will be inefficient due to a lack of traders. When they get "thick" they can be inefficient again due to congestion (the dilemma of too many yogurt choices). In the worst case, a market will stay that way and make everyone worse off. Why don't they change?
In the case of markets, bad designs can often persist not just because it takes time to discover better ones, but also because there may be lots of market participants with a stake in the status quo, and many interests are involved in coordinating any market-wide change. -- p223
And this example is why people in the water sector (or any other "vested interest+tragedy of the anti-commons" sector) should read this book -- to understand the scope for improvement as well as the path to get there.

NB: Roth radically improved kidney organ programs as well as "fixing" underperforming school placement programs in New York City and Boston, so he's had massive success in very conservative areas.

Bottom Line: I give this book FIVE STARS. If you're interested in understanding the exchanges around you (priced or not), then read this excellent book.

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