# 08_Book Review Sandra:tipska.qxd 72 Sandra Jednak, Elisabeth Schulte 2018/23(1) Sandra Jednak1, Elisabeth Schulte2 1University of Belgrade, Faculty of Organizational Sciences, Serbia 2School of Business & Economics, University of Marburg, Germany BOOK REVIEW DOI: 10.7595/management.fon.2018.0010 The price is the key determinant of the allocation on many markets, in particular on commodity markets, where essentially “the price does all the work” (Roth, 2015, p.19). However, there are also markets where the role of prices is limited, or where prices may even be completely absent. An obvious example is the marriage mar- ket: The allocation does not (only) depend on the market participants’ willingness to pay for the available al- ternatives, but on the attractiveness of the transaction partners for each other on both sides of the market. Alvin E. Roth who won the Nobel Prize in economics in 2012, in the book, Who Gets What ― and Why: The New Economics of Matchmaking and Market Design shows how matchmaking and market design could contribute to enhance the efficiency of market processes and market allocations. Roth demonstrates how practical prob- lems that occur in the establishment of matches in everyday life, like matchmaking between medicine stu- dents and hospitals, between students and schools, and between patients and organ donors, can be mitigated by a clever design of the algorithm that underlies the matching process. The book covers the theoretical base of the market design, but also its applications in particular markets. The book consists of four parts: 1) Markets are Everywhere, 2) Thwarted Desires: How Marketplaces Fail, 3) Design Inventions to make markets smarter, thicker, and faster and 4) Forbidden Markets and Free Markets. The fol- lowing issues are explored: how markets operate, why some markets operate well, while others fail, what pre- conditions for the successful market are there and how repugnant transactions can influence the market design. The issue of this book is matching markets, i.e., market design and the matching process. On matching mar- kets, prices have little (if any) impact on who gets what. Instead, recourses are allocated by a particular match- ing process. According to Roth (2015, p.18) “matching is economist-speak for how we get many things we choose in life that also must choose us”. The design of the matching process contributes to the efficiency of the allocation of scarce resources. Monitoring the existing state of the market, “we start to understand better how markets and marketplaces work, we realize that we can intervene in them, redesign them, fix them when they’re broken, start new ones where they will be useful” (Roth, 2015, p.201). According to Roth, the marketplace is successful and has optimal out- comes if it is thick, uncongested, safe and simple. In order to make a market work, many participants are needed. However, a lot of participants make a market thick, which is followed by congestion. Congestion raises competition, which may trigger early “exploding” offers, by actors on the one side of the market (for example, colleges), and signalling activities by the participants on the other side of the market (for example, students). It is a way to deal with competition. In such a situation, participants make strategic decisions that depend on what others do. They do not have enough time for carefully evaluating offers and making an informed decision. Also, they are often not safe to reveal their true preferences. As a consequence, bad matches are reached if the decision on a transaction is made too soon, too fast and too risky. Besides, repugnancy of transactions (“transactions that some people don’t want others to engage in” (Roth, 2015, p.23)) influence the market de- sign, because they limit the scope for prices to coordinate supply and demand. Market design “helps to solve market issues that could not be solved naturally” (Roth, 2015, p.20). It observes market failures and finds solutions how to fix them. Furthermore, it modifies and adjusts market rules from time to time in order to make the market operate better. The applicability of the theory is demonstrated by a number of real-life examples. As examples, how market forces push the market participants to successfully deal Book review of: Who Gets What ― and Why: The New Economics of Matchmaking and Market Design by Alvin E. Roth. An Eamon Dolan Book Houghton Mifflin Harcourt. Boston New York, 2015. 248pp. ISBN: 978- 0-544-29113-3 JEL Classification: D47 with issues of thickness, congestion and safety of doing business, the cases of Amazon, the internet, smart phones, computers, and credit cards are illustrated. Furthermore, the examples of Airbnb, Uber, eBay and PayPal show how markets change while business evolves and how these companies solve problems of thick- ness, congestion and safety. The problem of matching and market design are exemplified by the school choice systems in New York City and Boston (children to public/high schools, students to colleges), labour market (students/interns to hospi- tals, and US new Ph.D. economists to US colleges and university), dating and marriage, and organs trans- plantation (kidney donors to patients). The deferred acceptance algorithm and clearinghouses are used for making the match. It collects the preferences from both, demand and supply side, and stepwise establishes a stable matching. The complex theory and the working of the algorithm are explained in an accessible, non- formal way, and their usefulness is apparent through the discussion of real problems. Based on the charac- teristics of the particular market and its development, the algorithm has been modified in many directions. For example, the deferred acceptance algorithm has been applied for decades for the Medical Match. However, when women have started to enter into the market, and couples cared not only for their match, but also for the one of the partners, the algorithm needed to be adjusted in order to provide better matching. Roth and his col- leagues have done an important job, helping to install a market design that should overcome market failures and obtain better market operation. One particularly problematic case of matching and market design is kidney exchange. Exchanging a kidney for transplant concerns many people and societies because it saves lives. Despite (or maybe because of) the market participants’ high willingness to pay for a kidney donation, the exchange of money in this context is il- legal (and considered repugnant) in most parts of the world. A kidney could only be given as a gift. However, often a willing donor and the designated patient are incompatible, such that a possibility for the exchange of willing donors’ kidneys arises. However, the enforcement of a contract is not possible, so that simultaneity of the exchange becomes a crucial feature of the transaction to establish trust. Roth and his colleagues have created a long-running kidney chain starting with a single kidney donation. They made possible 2-paired and 3-paired kidney exchange, i.e., donations. The book is interesting and easy to read and understand. It provides an insight into how the market works. It can be a useful resource for participants in matching markets. Moreover, the design developed for the ex- plored case studies in the book shows that matching processes can bring benefits to both sides of the mar- ket and to society as a whole. Accepted: 2018-04-23 Sandra Jednak University of Belgrade, Faculty of Organizational Sciences, Serbia sjednak@fon.bg.ac.rs Sandra Jednak is employed at the Faculty of Organizational Sciences, University of Belgrade as an associate professor. She has published scientific research papers in international and national monographs, journals and conference proceedings. Her teaching areas are Introduction to Economics, Macroeconomics, Microeconomics, Economic Development and the EU. Her research focus is on the economic growth and development of SEE countries. Besides, her research interests are Knowledge (Based) Economy, Energy Economics, International Economics and Higher Education. Elisabeth Schulte School of Business & Economics, University of Marburg, Germany elisabeth.schulte@wiwi.uni-marburg.de Prof. Dr. Elisabeth Schulte is a professor of Institutional Economics and the director of the Marburg Centre for Institutional Economics (MACIE) at the University of Marburg, Germany. She obtained her doctoral degree from the University of Mannheim, Germany, in 2006. The areas of her research interests are in the fields of Institutional Economics, in particular Information Economics, Organisation Economics, Mechanism Design and Political Economics. 73 Management: Journal of Sustainable Business and Management Solutions in Emerging Economies 2018/23(1) About the Author << /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /All /Binding /Left /CalGrayProfile (Dot Gain 20%) /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Warning /CompatibilityLevel 1.4 /CompressObjects /Tags /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket false /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.0000 /ColorConversionStrategy /LeaveColorUnchanged /DoThumbnails false /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 1048576 /LockDistillerParams false /MaxSubsetPct 100 /Optimize true /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo true /PreserveFlatness true /PreserveHalftoneInfo false /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Apply /UCRandBGInfo /Preserve /UsePrologue false /ColorSettingsFile () /AlwaysEmbed [ true ] /NeverEmbed [ true ] /AntiAliasColorImages false /CropColorImages true /ColorImageMinResolution 300 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages true /ColorImageDownsampleType /Bicubic /ColorImageResolution 300 /ColorImageDepth -1 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.50000 /EncodeColorImages true /ColorImageFilter /DCTEncode /AutoFilterColorImages true /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /ColorImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /JPEG2000ColorACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /JPEG2000ColorImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /AntiAliasGrayImages false /CropGrayImages true /GrayImageMinResolution 300 /GrayImageMinResolutionPolicy /OK /DownsampleGrayImages true /GrayImageDownsampleType /Bicubic /GrayImageResolution 300 /GrayImageDepth -1 /GrayImageMinDownsampleDepth 2 /GrayImageDownsampleThreshold 1.50000 /EncodeGrayImages true /GrayImageFilter /DCTEncode /AutoFilterGrayImages true /GrayImageAutoFilterStrategy /JPEG /GrayACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /GrayImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /JPEG2000GrayACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /AntiAliasMonoImages false /CropMonoImages true /MonoImageMinResolution 1200 /MonoImageMinResolutionPolicy /OK /DownsampleMonoImages true /MonoImageDownsampleType /Bicubic /MonoImageResolution 1200 /MonoImageDepth -1 /MonoImageDownsampleThreshold 1.50000 /EncodeMonoImages true /MonoImageFilter /CCITTFaxEncode /MonoImageDict << /K -1 >> /AllowPSXObjects false /CheckCompliance [ /None ] /PDFX1aCheck false /PDFX3Check false /PDFXCompliantPDFOnly false /PDFXNoTrimBoxError true /PDFXTrimBoxToMediaBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXSetBleedBoxToMediaBox true /PDFXBleedBoxToTrimBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXOutputIntentProfile (None) /PDFXOutputConditionIdentifier () /PDFXOutputCondition () /PDFXRegistryName () /PDFXTrapped /False /CreateJDFFile false /Description << /ARA /BGR /CHS /CHT /CZE /DAN /DEU /ESP /ETI /FRA /GRE /HEB /HRV /HUN /ITA /JPN /KOR /LTH /LVI /NLD (Gebruik deze instellingen om Adobe PDF-documenten te maken voor kwaliteitsafdrukken op desktopprinters en proofers. 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