ECON 515
Information, Game Theory and Market Design
Lecture:
Professor:
Tuesdays, 6:30 – 9:15pm
Hemisphere A, Ronald Reagan Building
Nathaniel Higgins, Ph.D.
Andrew Stocking, Ph.D.
astocki1@umd.edu (email, preferred)
nhiggins@gmail.com
(510) 593-3938 (cell, less preferred)
ELMS Site:
https://elms.umd.edu/
Office Hours:
Grader:
Required Text:
By appointment; 30 minutes before and after lectures, TBD
Lisa Dettling
Suggested Software:
STATA/IC, version 12 (not required, but could be useful)
Course Description
Objectives
The course focuses on strategic decision-making and the theory and practice of market design. Topics
include experimental economics, spectrum auctions, labor markets, electricity markets and
environmental auctions.
Prerequisites
All students admitted to the Masters in Professional Studies in Applied Economics program have
satisfied prerequisites for this course.
Texts – Required and Supplemental
Required:
Supplemental: Microeconomics, Prentice-Hall, Robert Pindyck and Daniel Rubinfeld
Advanced Microeconomic Theory, Addison Wesley, Geoffrey Jehle and Philip Reny
Microeconomic Analysis, W. W. Norton and Co., Hal Varian
Microeconomic Theory, Oxford University Press, Andreu Mas-Colell, Michael Whinston, Jerry Green
Structure of the Course
The course is taught in a seminar format meeting once per week for 2.5 hours. Each topic will begin
with an explanation of fundamental microeconomic principles and will be followed by a discussion of
economic models and empirical evidence related to specific public policies. Student participation and
discussion in class are essential. In addition, students are expected to participate in online discussions in
between classes, which will be monitored by me. Grades are determined as follows:
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20% class participation and online discussion participation
10% problem sets (approximately 5)
25% in-class midterm
15% group presentation (details discussed during the first class)
30% in-class final exam
Given the limited time we have together, attendance is mandatory. If you need to miss a class for an
emergency, you must contact me prior to class and let me know. Each missed class will require a 1-2
page writing submission on a topic to be determined, which will be graded on a progressively more
rigorous scale for subsequent absences. In addition, those who miss a class should expect to be called on
during the next class if participation is light.
Homework is due at the beginning of class. Homework submitted more than 15 minutes into class will
not be accepted. Students who must miss an exam and submit appropriate documentation explaining
their absence will be offered a make-up exam. It will probably be harder.
Course Outline:
Students are expected to have done the readings prior to class so they can participate in the class
discussion (except the first class).
This course studies the design of organized markets, focusing on efficient organization and the
incentives created by market rules. Applications include online auction markets, government auctions of
natural resources, procurement auctions, matching markets (students to classes or schools, medical
residents to hospitals, kidneys to recipients). The analysis relies on a mix of documenting the rules of
real-world markets, game theoretic analysis, empirical analysis, and experimental work. A research
paper is optional with advance permission of instructor.
What is Market Design (class 1) – Varian/Pindyck & Rubenfeld/Mankiw
 Closed markets, market design
 Nobel Prize (technical nomination award)
 Incentives
 Strategy proof – Truth revealing
 Why do markets need design (how do they fail)
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Roth, Alvin E. "The Economist as Engineer: Game Theory, Experimental Economics and
Computation as Tools of Design Economics," Econometrica, 70, 4, July 2002, 13411378.
Roth, Alvin E. " What have we learned from market design ?" Hahn Lecture, Economic
Journal, 118 (March), 2008, 285-310.
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Game Theory (Gibbons book) (class 2)
 Nash
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Pick particular games
o Prisoner dilemma
o Cournot
Auction Theory (Class 3-4) – Gibbons/Krishna/Klemperer
(Why every economist should learn some auction theory)
Private Value
Common Value : Hendricks, Ken, and Robert Porter, "An Empirical Study of an Auction with
Asymmetric Information," American Economic Review, 1988. [Classic study of the winner’s curse in
bidding for off-shore oil leases. We’ll talk about the results in class.]
Richard Thaler, “Anomalies: The Winner’s Curse,” Journal of Economic Perspectives, 2(1), Winter
1988, 191-202. [Accessible article describing experimental and empirical evidence on the winner’s
curse, by one of the pioneering behavioral economists.]
Affiliated
Types
Combinatorial
Endogenous Entry
Reserve prices (Optimal, Secret)
Participation
Set-asides & Subsidies
Multiunit
Bulow, Jeremy and John Roberts (1989) The Simple Economics of Optimal Auctions, Journal of Political
Economy, 97(5), 1060-1090.
Klemperer, Paul. 2002. " What Really Matters in Auction Design?" Journal of Economic Perspectives,
16(1), 169-189.
Milgrom, P., “ Auctions and Bidding: A Primer,” Journal of Economic Perspectives, Summer
1989, pp 3-22.
Auction Application (class 5-6)
FCC
Treasury
Medicare Premium Support
Medicare DME
Medicare Part D
Oil and Gas
Airport landing slots
Pollution: Cramton, Peter and Suzi Kerr. 2002. " Tradeable Carbon Permit Auctions: How and Why to
Auction Not Grandfather." Energy Policy, 30, 333-345.
Online auctions
Conservation Reserve Program
Sears Outlet pricing
Electricity: Wolak, Frank A. 2001. "What Went Wrong in California's Restructured Electricity
Market?" Presentation at the AEI.
Midterm (class 7)
Two sided Markets (Intermediation) (class 7)
Online Advertising
Credit Cards
Advertising
Readings: David Evans and Richard Schmalensee, “The Industrial Organization of Markets with
Two-Sided Platforms,” Competition Policy International, 3(1), Spring 2007. [High-level overview of
platform competition and especially antitrust issues.]
Jonathan Levin, “The Economics of Internet Markets,” [Section 2 has a discussion of what we know
about the economics of platforms, and the model from class.]
Matching Markets (Class 8)
Theory : David Gale and Lloyd Shapley, "College Admissions and the Stability of Marriage," American
Mathematical Monthly, 69, 1962, pp. 9-15.
Reading: Alvin Roth and Elliott Peranson, The Re-Design of the Matching Market for American
Physicians: Some Engineering Aspects of Economic Design American Economic Review, 89, 4,
September, 1999, 748-780. [Describes the redesign of the matching algorithm used to assign
residents to hospitals – a challenging read.].
Two short articles by Sara Robinson: “Are Medical Students Meeting Their (Best Possible) Match?”
(Siam News, April 2003) and Tweaking the Math to Make Happier Medical Marriages,” (New York
Times, August 24, 2004).
Christopher Avery, Christine Jolls, Richard Posner and Alvin Roth, “The Market for Federal Judicial
Law Clerks” and “The New Market for Federal Judicial Law Clerks,” University of Chicago Law
Review, Summer 2001 (793-902) and Spring 2007 (447-486). [Long but interesting articles on the
unraveling
Unraveling : Roth, Alvin E, "Marketplace institutions related to the timing of transactions, and reply to
Priest (2010)" October, 2010.
Application
Kidney
School choice : Abdulkadiroglu, Atila, and Tayfun Sonmez. " School Choice: A Mechanism
Design Approach." 2003. American Economic Review 93-3: 729-747, June.
Atila Abdulkadiroğlu, Parag Pathak and Alvin Roth, “The New York City High School Match,” and
(with Tayfun Sonmez) “The Boston Publich School Match,” American Economic Review, 95(2), May
2005, 364-367 and 368-371, [Two short articles discussing the design of the New York and Boston
school choice systems.
National residency
Roth, Alvin and Elliot Peranson (1999). The Redesign of the Matching Market for American Physicians:
“Some Engineering Aspects of Economic Design. American Economic Review
Prediction Markets (class 9)
Justin Wolfers and Eric Zitzewitz (2004), "Prediction Markets", Journal of Economic Perspectives.
Additional Topics (Class 10)
Scoring auctions
Budget constraints
Signaling (Peter’s FCC example)
Collusion (Intentional & Tacit)
Market Thickness
Congestion
Combinatorial
Health exchanges
Evidence-Based Policy (Class 11)
Large Scale Field Experiments
Market Microstructure
Circuit breakers
Short sales
Congestion pricing (easy pass and changing prices)
Final (Class 12) – Maybe presentation
Assignments
Presentation
Replication (all do the same paper)
Discussion boards
Midterm – after auction theory
Roth Assignment: One final paper. The objective of the final paper is to study an existing
market or an environment with a potential role for a market, describe the relevant market design
questions, and evaluate how the current market design works and/or propose improvements on
the current design.
Cramton
Econ 415 Topics
auctioning a single item
independent private value
common value
affiliated value
benchmark model
English
Dutch
1st price
2nd price
winner’s curse
revenue equivalence theorem
reserve price
optimal auction
royalties
risk aversion
collusion
participation costs
wallet game
bidder asymmetries
linkage principle
auctioning many items
uniform-price auction
pay-as-bid auction
Vickrey auction
ascending clock
descending clock
Ausubel ascending clock
inefficiency theorem
demand reduction
bidding behavior in uniform-price
simultaneous ascending auction
activity rule
collusion in simultaneous ascending auction
information policy
matching problems
deferred acceptance algorithm
package auction (combinatorial auction)
clock-proxy auction
revealed-preference activity rule
proxy auction
core
electricity capacity markets
Academic Integrity
The University of Maryland, College Park has a nationally recognized Code of Academic Integrity,
administered by the Student Honor Council. This Code sets standards applicable to all undergraduate
and graduate students, and you are responsible for upholding these standards as you complete
assignments and take exams in this course. Please make yourself aware of the consequences of
cheating, fabrication, facilitation, and plagiarism. For more information see
www.studenthonorcouncil.umd.edu
Students with Disabilities
The University of Maryland College Park does not discriminate regardless of differences in age, race,
ethnicity, sex, religion, disability, sexual orientation, class, political affiliation, and national origin.
Reasonable accommodations will be made to students with documented disabilities.