The 2012 Nobel Prize in Economics Goes to…

Alvin Roth and Lloyd Shapely.  The Wall Street Journal coverage is here. An exerpt is below:

Two Americans won the Nobel Prize in economics Monday for research that has improved the way people are matched with limited resources, such as patients with donated organs or students with their preferred high schools.

Alvin Roth, a Harvard University professor who will soon move into a permanent position at Stanford University, and Lloyd Shapley of the University of California Los Angeles were honored “for the theory of stable allocations and the practice of market design,” the Royal Swedish Academy of Sciences said.

Their research focuses on how to fairly and efficiently match people with things—be they employers, schools, or donated kidneys—when pricing isn’t involved. Their work led to systems used by school districts in New York City, Boston and other cities to place students in high schools; by hospitals to match donated kidneys with patients; and by a program that assigns recent medical-school graduates to hospitals for residency programs.

Joshua Gans has a detailed review of the two laureates at Digitopoly, Kevin Bryan at A Fine Theorem discusses how the economics of matching relates to the marriage market, and Marginal Revolution has a primer on matching theory.

But is the research for which this year’s Nobel Prize in Economics was awarded relevant to the field of health care?  The answer is Yes.  As Alex Tabarrok states in this real world example:

Your spouse is dying of kidney disease. You want to give her one of your kidneys but tests show that it is incompatible with her immune system. Utter anguish and frustration. Is there anything that you can do? Today the answer is yes. Transplant centers are now helping to arrange kidney swaps. You give to the spouse of another donor who gives to your spouse. Pareto would be proud. Even a few three-way swaps have been conducted.

But why stop at three? What about an n-way swap? Let’s add in the possibility of an exchange that raises your spouse on the queue for a cadaveric kidney. And let us also recognize that even if your kidney is compatible with your spouse’s there may be a better match. Is there an allocation system that makes all donors and spouses better off (or at least no worse off) and that maximizes the number of beneficial swaps? In an important paper (Warning! Very technical. Requires NBER subscription.) Alvin Roth and co-authors describe just such a mechanism and show that it could save many lives. Who says efficiency is a pedestrian virtue?

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