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UU Introduction to Economics and Business Economics - Summary of Alvin Roth Text 'The Economist as Engineer' (2002)
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Summary – Alvin E. Roth – The Economist as Engineer (2002)The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for
Design Economics
Econometrica 70(4), 1341-1378 (excluding 1345-1364, §2)
Summary: (main examples = labour market for US doctors and FCC auctions)
Economists have been called upon to design markets, next to analysing them.
Design Necessities: eye for detail, dealing with complications of markets, engineering
approach (instead of principle features and simple models), using new tools.
Case (Thesis 1): experimental and computational economics are natural complements to game
theory in the work of design.
Argues that: some of the challenges facing both markets involve dealing with related kinds of
complementarities.
Computation: algorithms, computer science, calculations (mathematical)
Design Economics: design of institutions, design of markets, the part of economics intended
to further the design and maintenance of markets.
Game Theory: the part of economics that studies the rule of the game, this theory provides a
framework with which to address design.
Thesis 2: A still unfamiliar kind of design literature in economics should be matured and
encouraged underlying economic theory can be shaped, knowledge can be shown, practical
lessons can be learned.
Thesis (Goal) 3: It should be shown how recent work on design has posed some new
questions for economic theory and started to suggest some answers.
In all fields of science, design has many sides and complications that should be dealt with
along with the known basic models of the particular science these complications (which
are basis to the engineering literature) must be explored through computational models.
The close relation of natural sciences (physics) to engineering goes far back in history.
In the age of the Internet, a big part of market design is going to be performed by
programmers.
A scientific literature of design economics should be stimulated to develop market design.
Statement / Hypothesis: if the market design is nurtured to maturity, the relationship of
engineering and economics will come close to that of engineering in natural sciences.
The design of complex markets like the US doctors labour market and radio spectrum
auctions were done and evaluated by economists in the 1990s.
Design efforts of complementarities share some features that seem to be characteristic of the
context in which markets are designed. Completely different markets share similarities in
design effort the fact that goods can be complementarities should be taken into account.
Design Characteristics: it should be fast, it should not be a priori craft, history can teach,
earlier experience helps.
(Re)design of Entry Level Labour Market (for US doctors) design efforts can lead to the
ability to profitably employ theory, historical observation, experimentation and computation.
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