Wednesday 17 October 2012

Dumb reactions to the Nobel (updated)

Some of the reactions to the recent Nobel Prise win by Alvin E. Roth and Lloyd S. Shapley seem to me to be just dumb. Peter Klein at the Organisations and Markets blog writes,
Market design is basically the study of exchange without prices.
I would think that this is not so much dumb as wrong. One of the examples of market design that Roth himself gives is he auctioning of radio spectrum by many governments and there were prices there, very large prices!

But worse I think is the reaction from some "free market" types. Klein writes,
Enthusiasm among my informal circle of professional friends is muted. One suggests that, rather than take cultural resistance to the price mechanism (e.g., for kidney allocation) as exogenous, scholars should work to overcome this resistance.
David Henderson at the EconLog blog is another example of this basic argument. He writes,
With human organs, we know the answer: it's to allow free markets so that thousands of people can make some extra money, either by contracting to have their organs to removed after their death or by selling a spare organ, such as a kidney or a piece of their liver, when alive. Now that that question is answered, where is my Nobel?
While David is right that the best answer is a market for things like kidneys, the reality is that we don't have and will not have in the near future, a free market in such things. But people are dying right now because of inefficiencies in the current organ (non)market. We need to do the best we can right now given the constraints we face right now. This is what Roth's work on market design does. It improves the efficiency of the current (non)market and saves lives in the process. As Virginia Postrel writes, - and David Henderson quotes in an update to his post -
Yet unlike the economists, wonks and polemicists who rail against the prohibition of organ sales, Roth can claim credit for actually increasing the number of kidney transplants. "Alvin Roth has been a major contributor to the fastest-growing source of transplantable kidneys in America, and probably in the world, through paired donation," says Rees.
In short Alvin Roth has literately saved lives. The free-market argument is letting the perfect get in the way of the good.

Update: Eric Crampton writes on Kidney Counsels of Despair