Who Gets What — and Why | Alvin E. Roth

Summary of: Who Gets What — and Why: The New Economics of Matchmaking and Market Design
By: Alvin E. Roth

Introduction

Embark on a journey through the intriguing world of markets with Alvin E. Roth’s ‘Who Gets What — and Why: The New Economics of Matchmaking and Market Design.’ This book takes you beyond the traditional commodity markets, delving into the complexities of matching markets, where both buyers and sellers need to ‘choose’ each other. Discover how technology is revolutionizing markets, making them thicker and quicker, while grappling with the consequences of unraveled markets, congestion, and information overload. Unveil how market design innovations can reshape faulty systems, as exemplified by New York’s public school system, while exploring ways to mitigate communication congestion and improve the efficiency of markets.

Matching Markets Unpacked

This book summary explores the concept of matching markets and how they differ from commodity markets. It highlights that in matching markets, price is not the only determining factor, and how buyers and sellers have to choose each other. The summary discusses the challenges that arise from the scarcity of resources and inadequate information in matching markets. Finally, it proposes solutions to improve matching markets.

Thriving Markets

Markets need to be “thick,” involving many participants to be successful. However, too much thickness can create congestion and slow down markets. Commodity markets manage to avoid this problem by bringing buyers and sellers together at a price level determined by supply and demand without evaluating each transaction individually. Technological advancements, including smartphones and apps, have made thick, quick markets possible. An example is Uber, which developed software that made the transportation market thicker and quicker without introducing new cars.

Unraveling Job Markets

The book exposes how markets can become unraveled due to the unethical practices of individuals looking to game the system. It highlights how the lack of fair competition for promising law students can undo even the most promising of markets. For instance, law firms give rising law students an exploding offer, which pits them against a ticking clock to accept or reject it. This gives rise to two major problems. Firstly, firms make offers without any information about the candidate’s performance in their last two years of law school. Secondly, students are forced to make decisions with no knowledge of other offers on the table. In the 1980s, the National Association for Law Placement (NALP) tried to deal with the problem by prohibiting law firms from hiring first-year law students before the completion of their first semester. However, law firms found ways to circumvent the regulation, and this problem persists today. Thus, the author argues that unraveling markets hurt both sellers and buyers and has long-lasting detrimental effects on the economy and society.

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