Research Seminar: "History of Market Design: Genealogies and Shifting Identities“
Ivan Boldyrev:
This talk is inspired by a set of general, intuitive ideas that, I hope, will be clarified by the historical exposition to follow. Let me summarise them as briefly as possible.
Even before it took its definitive formal shape, the economic model of general competitive equilibrium was considered to characterise an optimal state of the economy as a whole. Market socialists argued that this state could not only be described in an abstract model, but also decreed and achieved through planning. The simple technologies of this implementation mimicked the functioning of markets and were inherently algorithmic: the ‘central planning board’ was supposed to follow the Walrasian tâtonnement procedure based on the information it was expected to receive. The subsequent development of general equilibrium literature never fully abandoned this normative aspect of the Walrasian model. Many economists associated with the Cowles Commission and other influential research institutions did not abandon the underlying idea: to find ways to actually construct this optimal economy, even if planning seemed to be beyond reach politically and/or computationally.
Market design, or microeconomic engineering, uses the tools of economic theory to construct or redesign markets and allocation systems so that they deliver better social outcomes. As a vast and influential field of contemporary microeconomics, it is naturally connected with the more abstract discipline of mechanism design, which synthesises insights from general equilibrium theory, social choice, game theory, and the analysis of information.
Here, I will argue that market design emerged not only from game theory (Roth and Wilson, 2019) but also from efforts to implement general equilibrium. A central figure in mechanism design was Leonid Hurwicz (1917–2008). His work evolved from studies of general equilibrium stability and non-linear programming to the general theory of allocation mechanisms. In this later work, Hurwicz sought to formalise exchange and communication processes, directly addressing Hayek’s (1945) challenge regarding the informational inefficiency of centralised planning. These processes, he believed, could be optimally designed to achieve desirable outcomes. It was primarily Hurwicz who forged the link between market socialism, general equilibrium, and market design.
In my talk, I will examine the historical origins of market design. By drawing on the work of its progenitors – Hurwicz, but also Herbert Scarf, David Gale, and Lloyd Shapley – I will demonstrate how the inherently constructive nature of their mathematical research made it so useful for market design projects. I will also highlight the ways in which this older generation of scholars differed from the newer one – that of Robert Wilson, Paul Milgrom, and Alvin Roth.
About Ivan Boldyrev
Ivan Boldyrev is Assistant Professor of History and Philosophy of Economics at the Department of Economics and Business Economics, Radboud University Nijmegen, the Netherlands. He is a philosopher and historian of ideas with wide-ranging interdisciplinary interests. In the history and philosophy of recent economics, his particular focus is on general equilibrium theory, planning, performativity of economics, and market design.
His writings have appeared in many outlets, including the Journal of Economic Literature; Journal of Economic Methodology; Studies in History and Philosophy of Science; History of Political Economy; Journal of the History of Economic Thought; The British Journal for the History of Science; New Palgrave Dictionary of Economics; and the Stanford Encyclopedia of Philosophy.