Institutional Improvements Can Sometimes Be Designed, Rather than Only Spontaneous
A distinguished school of libertarian and neo-Austrian economic thought argues, following F.A. Hayek, that institutional improvements only arise from spontaneous order, and never from conscious design. There is something to their argument, but the designs of Alvin Roth provide counter-examples.
(p. A13) Mr. Roth's work has been to discover the most efficient and equitable methods of matching and implement them in the world. He writes with verve and style, describing many market malfunctions--from aboriginal tribes in Australia arranging marriages for children not yet born to judges bending every rule in the book to hire law clerks years before they have graduated from law school--and how we ought to think about them.
Mr. Roth's approach contrasts with standard debates over free markets versus government regulation. We want markets to be thick, quick, timely and trustworthy, but without careful design markets can become thin, slow, ill-timed and dangerous for the honest. The solution to these problems is unlikely to be regulation legislated from on high. Instead what Mr. Roth practices is nuanced market design created mostly by market participants. Mr. Roth found, for example, that even though the problems in the market for gastroenterologists and law clerks looked the same (hiring started years before schooling ended), the solutions had to be subtly different because of differences in culture, history and norms.
For the full review, see:
ALEX TABARROK. "BOOKSHELF; The Designer of Markets; In some markets, price isn't the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first." The Wall Street Journal (Tues., JUNE 16, 2015): A13.
(Note: ellipses added.)
(Note: the online version of the review has the date JUNE 15, 2015, and has the title "BOOKSHELF; Matchmaker, Make Me a Market; In some markets, price isn't the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first.")
The book under review is:
Roth, Alvin E. Who Gets What -- and Why: The New Economics of Matchmaking and Market Design. New York: Houghton Mifflin Harcourt Publishing Co., 2015.