Sunday, July 27, 2014

LA Times OpEd: We shouldn't treat kidneys as commodities

The distinguished transplant nephrologist Gabe Danovitch and the lawyer and medical ethicist Alexander Capron respond to the recent WSJ oped of the late Gary Becker:

We shouldn't treat kidneys as commodities by ALEXANDER M. CAPRON AND GABRIEL DANOVITCH

"buying and selling organs is a dangerous and misguided game, no matter how exalted the theorists playing it or how seemingly straightforward their calculations."
...
"Turning organs into a financial commodity would undermine the safety and efficacy of the system now in place and would not necessarily increase the supply. The United States has served as a model for ethical organ transplantation, and abandoning our long-standing prohibition on buying organs would lead us into an ethical minefield with negative repercussions the world over."

Saturday, July 26, 2014

Market design in honour of John Ledyard in Sydney

Here in the Southern hemisphere, there are two simultaneous conferences on market design. I'm at the one in Sao Paulo in honor of Marilda Sotomayor, and it turns out they just had one in honor of John Ledyard at the University of Technology's Centre for Policy and Market Design in Sydney.

ESEI / UTS Centre for Policy and Market Design Conference in honour of John Ledyard

July 24 & 25 at the University of Technology, Sydney
Room B424, Level 4, 'B Block", UTS Business School
1-59 Quay Street, Haymarket, Sydney, Australia


Here's the program:

ESEI/UTS Centre for Policy and Market Design Conference in honour of John Ledyard

July 24, 2014

9:00 – 9:15

Welcome

9:15 – 9:55

“A Simple Buy-back Auction for Fisheries Management” with Guillerme Freitas and Theodore Groves

9:55 – 10:35

“Equilibrium Bid Strategies in an Auction with Bidder Preferences and Resale”  with Simon Loertscher

10:35–11:00

 

Coffee Break

11:00 – 11:40

“Information Disclosure In Contests: A Bayesian Persuasion Approach” with Junjie Zhou

11:40 – 12:20

“On Efficient Partnership Dissolution” with Oleksii Birulin

12:20–14:00

 

Lunch Break

14:00 – 14:40

“Tacit collusion and asset (un)certainty in first-price common value auctions”with Thomas Sheldrick

14:40–15:20

“A Long Way Coming:  Designing Centralized Markets with Privately Informed Buyers and Sellers” with Simon Loertscher and Leslie M. Marx

15:20 –15:50


Coffee Break

15:50– 16:30

"Entry by Takeover: Auctions vs. Bilateral Negotiations" with Marco Pagnozzi

July 25, 2014

9:00 – 9:40

“Human-Robot Interaction In A Classical Experiment On Multi-Period Asset  Pricing” with Elena Asparouhova

9:40 – 10:20

“Improving Blood Donations:  A Summary of 6 Papers” with Ashley Craig, Ellen Garbarino, Stephanie Heger, Victor Iajya, Mario Macis, Nicola Lacetera and Carmen Wang.

10:20–10:50

 

Coffee Break

10:50–11:30

“Cake Cutting Algorithms for Piecewise Constant and Piecewise Uniform Valuations” with Chun Ye

11:30- 12:10

“On Uniqueness of Equilibrium in the Kyle Model” with Paulo Klinger Monteiro and Rabee Tourky

12:10–13:40

 

Lunch Break

13:40– 14:20

Repeated Nash Implementation” with Ludovic Renou

14:20 – 15:00

“Plasticity, Monotonicity, and Implementability” with Rudolf Müller

15:00 –15:30


Coffee Break

15:30– 16:10

“Generalized Majority Rules” with Marco Faravelli

16:10- 17:00

"Designing Package Markets to Eliminate Exposure Risk" with Jacob K. Goeree

Friday, July 25, 2014

Financial disincentives to live kidney donation: richer people donate at a higher rate

The paper "Population Income and Longitudinal Trends in Living Kidney Donation in the United States" by Jagbir Gill, Jianghu Dong and John Gill, in the Journal of the American Society of Nephrology, published online July 17, 2014 has this striking figure:

The difference in living donation rates per million population between the highest and lowest income quintile populations increased over time and was largest in 2010. 
Note that the recession caused a decrease in donation among the least wealthy. I think this is as clear a demonstration of the financial disincentives for donation as I've seen.

Thursday, July 24, 2014

Celebrating the 70th Birthday of Marilda Sotomayor, July 25-30 at the University of Sao Paulo


Here's Marilda's cv, and the conference program:


HIGHLIGHTS:
Prof. Alvin E. Roth, Nobel Laureate 2012, will present the mini-course on Market Design 
Prof. Eric S. Maskin, Nobel Laureate 2007, will present a Plenary Lecture
Prof. Robert J. Aumann, Nobel Laureate 2005, will present a Plenary Lecture
Prof. John F. Nash Jr., Nobel Laureate 1994, will present a Plenary Lecture
Updated: July 4, 2014
Please note important changes:
Friday’s Regular Presentation Session (July, 25th) has been changed to Thursday (July, 31st). There were also changes in the Invited Sessions

Wednesday, July 23, 2014

Update on school choice in Newark

The WSJ has the story:
Charters Catch On Fast in Newark: Parents Increasingly Look Outside District Schools By LESLIE BRODY

"In the debut of a system that lets families apply to charter schools and district schools at the same time, Newark got an eye-opening lesson: More than half of the applicants for kindergarten through eighth grade ranked charters as their first choice.

The application numbers, supplied by the state-operated district, show the popularity of charters at a time when Superintendent Cami Anderson's One Newark reorganization plan faces heated opposition from some residents.

One part of the complex plan aims to make it easier for children to sign up for schools outside their neighborhoods. Ms. Anderson said the application data show many families want greater choice.

"Universal enrollment is giving us a real sense of demand and allowing families of all learners, including those who struggle, more options," she said. Some critics, meanwhile, say the superintendent's push to consolidate, overhaul and restaff many district schools has created such uncertainty that it hastened a flight to charters.

Newark is among a handful of cities experimenting with universal enrollment systems, including Denver, New Orleans and Washington. Nina Rees, president of the National Alliance for Public Charter Schools, said she hoped other cities would follow suit."


Learning Curve
Recent student numbers for kindergarten through 12th grade in Newark
Newark district-school enrollment for fall 2014: 34,800 students
Newark charter-school enrollment for fall 2014: 12,200
Newark district-school enrollment for fall 2013: 35,567
Newark charter-school enrollment for fall 2013: 10,869
(Source: Newark Public Schools)

Tuesday, July 22, 2014

Should there be a residency match for medical physics?

The Journal of Medical Physics has published a debate on the resolution: Medical physics residents should be placed using a matching program

Stephen Sapareto, X. Ronald Zhu and Colin G. Orton, Moderator
Med. Phys. 41, 060601 (2014); http://dx.doi.org/10.1118/1.4871039

Arguing for the Proposition is Stephen Sapareto, Ph.D., arguing against the Proposition is X. Ronald Zhu, Ph.D.

Medical physicists get Board certification following a residency, but they are Ph.D.s and not M.D.'s, so they finish their degree only after writing a dissertation.

Briefly, the position in favor of a match is that graduates are facing a chaotic unraveled market that resembles the one for medical residents prior to the institution of a match.  And the position against a match rests on the observation that medical physicists don't all finish at the same time of year, and that the present rules on timing would be sufficient if only they could be enforced...

Here's an explanation of what medical physicists do, from the American Association of Physicists in Medicine.

Monday, July 21, 2014

Is same-sex dancing repugnant in Britain?

The Telegraph has the story:
Ballroom may soon be strictly off limits for same-sex pairs 
"Women have traditionally paired up at tea dances and ballroom events when there has been a shortage of male partners , but members of the British Dance Council may be about to ban the practice"

"Members of the British Dance Council (BDC) are to consider changing its rules to define a partnership as “one man and one lady”, for all amateur and professional competitions, unless specifically stated otherwise.

"Critics claim that the change in rules would mean same-sex couples may be “banned” from competing in all but a handful of specially designated competitions, despite facing no impediment to their participation until now. The dispute is understood to have stemmed from a rise in the number of successful same-sex couples on the ballroom dancing scene.

"Same-sex couples — both men and women — currently compete regularly across Britain, and have appeared on international versions of television show Strictly Come Dancing. Complaints have been raised arguing that, in the case of men, they have an advantage, due to their superior strength.

"Supporters of the proposal argue it is merely bringing ballroom dancing in line with other sports, where participants are already divided by gender. The proposals are to be debated on July 21, and critics claim that they could, if adopted, contravene equalities legislation."

Sunday, July 20, 2014

Dynamic Games, Contracts, and Markets at Stanford SITE, July 21-23

STANFORD INSTITUTE FOR THEORETICAL ECONOMICS (SITE)
Session 3: Dynamic Games, Contracts, and Markets

Monday, July 21, 2014

8:30 am to 9:00 am
Check-in and Breakfast
9:00 am to 9:45 am
Dynamic Trading: Price Inertia, Front-Running and Relationship Banking
Presented by: Yuliy Sannikov, Princeton University
Co-Authors: Andy Skrzypacz, Stanford University
9:45 am to 10:00 am
Coffee Break
10:00 am to 10:45 am
Dynamic Ex Post Equilibrium, Welfare, and Optimal Trading Frequency in Double Auctions
Presented by: Songzi Du, Simon Fraser University; Haoxiang Zhu, Massachusetts Institute of Technology
10:45 am to 11:00 am
Coffee Break
11:00 am to 11:45 am
TBA
Presented by: Zhiguo He, University of Chicago
11:45 am to 1:30 pm
Lunchtime Discussion
1:30 pm to 2:15 pm
Labor Union Members Play an OLG Repeated Game
Presented by: Michihiro Kandori, University of Tokyo; Shinya Obayashi, Tohoku University
2:15 pm to 2:30 pm
Coffee Break
2:30 pm to 3:15 pm
Perfect Versus Imperfect Monitoring in Repeated Games
Presented by: Takuo Sugaya, Stanford University; Alexander Wolitzky, Stanford University
3:15 pm to 3:30 pm
Coffee Break
3:30 pm to 4:15 pm
Reputation Without Commitment
Presented by: Jonathan Weinstein, Northwestern University; Muhamet Yildiz, Massachusetts Institute of Technology
6:00 pm to 8:30 pm
Dinner

Tuesday, July 22, 2014

8:30 am to 9:00 am
Check-in and Breakfast
9:00 am to 9:45 am
The Value of a Reputation Under Imperfect Monitoring
Presented by: Martin Cripps, University College London; Eduardo Faingold, Yale University
9:45 am to 10:00 am
Coffee Break
10:00 am to 10:45 am
A Reputational Theory of Firm Dynamics
Presented by: Simon Board, University of California, Los Angeles; Moritz Meyer-ter-Vehn, University of California, Los Angeles
10:45 am to 11:00 am
Coffee Break
11:00 am to 11:45 am
Managerial Attention and Worker Engagement
Presented by: Marina Halac, Columbia Business School; Andrea Prat, Columbia University
11:45 am to 1:30 pm
Lunchtime Discussion
1:30 pm to 2:15 pm
Beeps
Presented by: Jeff Ely, Northwestern University
2:15 pm to 2:30 pm
Coffee Break
2:30 pm to 3:15 pm
Dynamic Delegation of Experimentation
Presented by: Yingni Guo, Northwestern University
3:15 pm to 3:30 pm
Coffee Break
3:30 pm to 4:15 pm
Optimal Design of Internal Disclosure
Presented by: Dmitry Orlov, Stanford University
6:00 pm to 8:30 pm
Dinner

Wednesday, July 23, 2014

8:30 am to 9:00 am
Check-in and Breakfast
9:00 am to 9:45 am
Auctions with Limited Commitment
Presented by: Konrad Mierendorff, University of Zurich
Co-Authors: Qingmin Liu, Columbia University; Xianwen Shi, University of Toronto
9:45 am to 10:00 am
Coffee Break
10:00 am to 10:45 am
Dynamic Eliciting Unobservable Information
Presented by: Nicolas Lambert, Stanford University
Co-Authors: Christopher Chambers, University of California, San Diego
10:45 am to 11:00 am
Coffee Break
11:00 am to 11:45 am
Making Collusion Hard: Asymmetric Information as a Counter-Corruption Measure
Presented by: Sylvain Chassang, Princeton University; Juan Ortner, Boston University
11:45 am to 1:30 pm
Lunchtime Discussion
1:30 pm to 2:15 pm
Efficient Firm Dynamics in a Frictional Labor Market
Presented by: Leo Kaas, University of Konstanz
Co-Authors: Philipp Kircher, University of Edinburgh
2:15 pm to 2:30 pm
Coffee Break
2:30 pm to 3:15 pm
Optimal Financial Regulation and the Concentration of Aggregate Risk
Presented by: Sebastian Di Tella, Stanford University
3:15 pm to 3:30 pm
Coffee Break
3:30 pm to 4:15 pm
Dynamic Markets for Lemons: Performance, Liquidity, and Policy Intervention
Presented by: Diego Moreno, Universidad Carlos III de Madrid; John Wooders, University of Technology Sydney

Saturday, July 19, 2014

"The organ detective:" article about anthropologist Nancy Scheper-Hughes

An interesting long article by Ethan Watters in the July/August issue of the Pacific Standard: The Organ Detective: A Career Spent Uncovering a Hidden Global Market in Human Flesh discusses Nancy Scheper-Hughes, her work, and her position on where anthropology should try to position itself between science and activism.

"Scheper-Hughes’ investigation of the organ trade would be a test case for a new kind of anthropology. This would be the study not of an isolated, exotic culture, but of a globalized, interconnected black market—one that crossed classes, cultures, and borders, linking impoverished paid donors to the highest-status individuals and institutions in the modern world. For Scheper-Hughes, the project presented an opportunity to show how an anthropologist could have a meaningful, real-time, and forceful impact on an ongoing injustice.
...
"Since the mid-1990s, Scheper-Hughes has published some 50 articles and book chapters about the organ trade, and she is currently in the process of synthesizing that material into a book, tentatively titled A World Cut in Two. Over the years, she has had an outsize impact on the intellectual trends in her field, and her study of the organ trade is likely to be her last major statement on the meaning and value of the discipline to which she has devoted her life. Whether this body of work represents a triumph of anthropological research or a cautionary tale about scholarly vigilantism is already a hotly disputed question among her colleagues.
...
"In a 1995 debate with the anthropologist Roy D’Andrade in the pages of Current Anthropology, Scheper-Hughes argued for what she called a “militant anthropology,” in which practitioners would become traitors to their class and nation by joining political battles arm in arm with their subjects. The job of the anthropologist wasn’t simply to document the quotidian but to strip away appearances and reveal the hidden forces and ideologies that leave people dominated and oppressed. To do this, she suggested throwing off the traditional guise of the academic—in “the spirit of the Brazilian ‘carnavalesque’”—and joining the powerless in their fight against bourgeois institutions like hospitals and universities.

“The new cadre of ‘barefoot anthropologists’ that I envision,” she wrote, “must become alarmists and shock troopers—the producers of politically complicated and morally demanding texts and images capable of sinking through the layers of acceptance, complicity, and bad faith that allow the suffering and the deaths to continue.”
...
"“With the moral model, the truth ain’t exactly the thing that everyone strives for,” D’Andrade, who is now retired and living in Northern California, told me. “What you strive for is a denunciation of a real evil.” I asked him who prevailed in his public debate with Scheper-Hughes. “I believed that after the kerfuffle that people would get back to asking, ‘How do you know something is true or not?’ But in the end, the moral model swept the country and cultural anthropology stopped being anything that a self-respecting social scientist would call a science. The hegemony of the Scheper-Hughes position became total.”
...
"In the Philippines, kidney sellers she interviewed often pulled up their shirts, displaying their nephrectomy scars with evident pride. They spoke of the surgery as a sacrifice made for their families, and members of their community sometimes compared their abdominal incisions to the lance wounds Christ received on the cross. In Moldova, as she reported in a 2003 paper published in the Journal of Human Rights, people who had sold their kidneys were considered so morally and physically compromised that they were treated as social pariahs. “That son of a bitch left me an invalid,” one Moldovan paid donor said of his surgeon. Young Brazilian men who had been flown to South Africa to sell their kidneys described to Scheper-Hughes how the experience had gained them a pass into the world of tourism and medical marvels. One told her that his main regret was not having spent more time in the hospital. “There were clean sheets, hot showers, lots of food,” he recalled. As he recovered, he went down to the hospital courtyard and bought himself his first cappuccino. “It was like ambrosia,” he said. “I really felt like a big tourist.” In the end, some attested that they would make the deal again, and some regretted the decision.
...
"One convicted broker, Gadalya “Gaddy” Tauber, gave her lengthy interviews while serving out his sentence in Henrique Dias military prison in Recife, Brazil. Tauber, she learned, had facilitated a trafficking scheme that sent poor Brazilians to a private medical center in South Africa to supply kidneys for Israeli transplant tourists. He employed a number of “kidney hunters,” some of whom were young men who had already donated their kidneys, to find new recruits. In the end, it wasn’t difficult. Once the first young men came back from surgery centers in South Africa showing off their thick rolls of cash, Tauber and his associates had more willing donors than they needed. They began to drop the price they offered to donors from $10,000 to $6,000 and then to $3,000, Scheper-Hughes reported in a 2007 profile of Tauber.
...
“Transplant surgeons vie only with the Vatican and its cardinals with respect to their assumption of privilege, irrefutability and of a kind of ‘divine election’ that seems to place them above (or outside) the mundane laws that govern ordinary mortals,” she wrote in one article. “Like child-molesting priests among Catholic clergy, these outlaw surgeons are protected by the corporate transplant professionals hierarchy.”
...
"Although she rejects Rothman’s contention that she is hostile to doctors, Scheper-Hughes has long argued that it is her job to investigate an insulated surgical profession prone to self-glorification. She felt obligated to challenge doctors who talked of “saving lives”—as if the benefits to organ recipients trumped all other concerns. She saw bioethicists who argued for a regulated market in kidneys as “handmaidens of free-market medicine.” And she likewise criticized tame, “clinically applied” medical anthropologists who work closely with doctors to provide the spoonful of cultural knowledge that helps the Western medicine go down.

Back in 1990, she argued that the job of a medical anthropologist was to question, even ridicule, Western medicine.
...
"In the medical community, despite her record of antagonization, many transplant surgeons give Scheper-Hughes credit for bringing widespread abuses to light, and for revealing the voices of donors and middlemen in the transplant trade. “She’s pointed out that underground illegal markets really do exist,” says Arthur Matas, the director of the Renal Transplant Program at the University of Minnesota. While most transplant surgeons like to think that their community would never participate in such a black market, Matas says, Scheper-Hughes has made it clear that they do—“sometimes unknowingly and sometimes knowingly.”



Here are some previous posts in which I've written about Scheper-Hughes and her work on black markets in organs.

Friday, July 18, 2014

What is the effect of legalizing indoor prostitution?

In 2009 I wrote a blog post about the unusual situation in Rhode Island, in which a change in legislation had inadvertently made only outdoor prostitution illegal:


Where it's illegal for prostitutes to give massages

The complicated legal situation in Rhode Island makes indoor prostitution legal, but requires masseurs to be licensed, so prosecutors "brought charges against alleged brothels for performing unlicensed massages."
(That was a situation that Cheap Talk characterized as "happy endings but no beginnings.").

But now a serious paper has been written on the effect of this change (which was reversed later in 2009):

Decriminalizing Indoor Prostitution: Implications for Sexual Violence and Public Health

Scott CunninghamManisha Shah

NBER Working Paper No. 20281
Issued in July 2014
NBER Program(s):   HE      LS   LE 
Most governments in the world including the United States prohibit prostitution. Given these types of laws rarely change and are fairly uniform across regions, our knowledge about the impact of decriminalizing sex work is largely conjectural. We exploit the fact that a Rhode Island District Court judge unexpectedly decriminalized indoor prostitution in 2003 to provide the first causal estimates of the impact of decriminalization on the composition of the sex market, rape offenses, and sexually transmitted infection outcomes. Not surprisingly, we find that decriminalization increased the size of the indoor market. However, we also find that decriminalization caused both forcible rape offenses and gonorrhea incidence to decline for the overall population. Our synthetic control model finds 824 fewer reported rape offenses (31 percent decrease) and 1,035 fewer cases of female gonorrhea (39 percent decrease) from 2004 to 2009.

The story has been picked up:
Here's Vox,  Rhode Island accidentally decriminalized prostitution, and good things happened
That post concludes as follows
"Why is this research important?

"According to a 2013 estimate, prostitution is an industry that generates over $14 billion annually in the United States. That's despite the fact that it's almost universally illegal across the country, save for some regulated brothels in some parts of Nevada. (Recall that Rhode Island recriminalized sex work in 2009.)

"Despite the industry being huge and persistent, almost everything we know about decriminalizing prostitution is rooted in speculation, rather than good data.

"Prior research has been plagued by problems, like relying on small sample sizes that aren't necessarily representative of the industry. According to the authors, most of the studies that exist examine street prostitution, even though 85 percent of all sex-work activity is considered part of the indoor market.

"Sex work is a predictably fraught policy issue, because it gets entangled in matters of morality. But this study adds to a body of research that suggests criminalizing prostitution causes higher rates of victimization and unsafe practices."
******

And the Washington Post weighs in here, with a wider discussion of prostitution and its repugnance,
**********

For those of you who don't know Scott Cunningham, he's a serious student of the dark side of the economy...see a previous post on his work here.

Thursday, July 17, 2014

Golden Goose Award to Preston McAfee, Paul Milgrom and Bob Wilson

One of the 2014 Golden Goose Awards recognizes the spectrum auction work of Preston, Paul and Bob.

Of Geese and Game Theory: Auctions, Airwaves – and Applications


McAfee, Migrom and Wilson
Social scientists and now Golden Goose awardees: Preston McAfee, left, Paul Milgrom and Robert Wilson
What’s the connection between social sciences research on game theory and your ability to make calls from your cellphone anywhere in the country, watch your favorite cable TV show, find a good restaurant anywhere in the world, or live stream the “big game” on your smartphone? Meet Robert Wilson, Paul Milgrom, and Preston McAfee, whose basic theoretical research on game theory and auctions, much of it federally funded, eventually helped the Federal Communications Commission figure out how to allocate the nation’s telecommunications spectrum through sophisticated, enormously complex auctions.
The story begins with Robert Wilson, a Stanford University economics professor who earned his undergraduate degree and his Ph.D. at Harvard University. Wilson has always had a strong interest in game theory, including how it applies to formulating auctions for maximum results. Game theory uses mathematical models to study how people and organizations make decisions. It is highly theoretical but over time has had significant applications. Early in his career, in the 1960s, Wilson’s research was supported by the U.S. Atomic Energy Commission (AEC). The AEC cared little about the specific topic of Wilson’s research – auctions. As he notes today, few people did. What the AEC really cared about was advancing the field of game theory. At the time, this was obscure, curiosity-inspired basic research, supported by the federal government.
Wilson also conducted research in the 1970s for the Office of Naval Research, which wanted to improve the bidding process for contractors to construct naval ships. Eventually, in the 1980s and 1990s, Wilson’s continuing game theory research on auctions and other economic transactions would be supported by the National Science Foundation.

Golden Goose Award logoRobert Wilson, Paul Milgrom and Preston McAfee are the second set of Golden Goose winners announced this year. Sponsored by a coalition of academic, business, and scientific groups, with the active encouragement of some members of Congress, the Golden Goose Awards honor scientific researchers whose U.S. government-funded studies might have seemed strange, odd, impractical or wasteful at the time but which paid solid dividends — “major economic or other benefits to society” — in subsequent applications. Recipients are selected by a panel of scientists and researchers.The third annual Golden Goose Awards ceremony takes place in Washington, D.C., on Sept. 18. For more on the the Gooseys and this year’s earlier winner, click here.

As an undergraduate mathematics major at the University of Michigan, Paul Milgrom was inspired by the work of Nobel Prize winner William Vickrey, a pioneer in fundamental auction theory, who conducted his research in this area at Columbia University.
After several years of working as an actuary, Milgrom attended graduate school at Stanford where Robert Wilson served as his faculty adviser. The subject of Milgrom’s Ph.D. dissertation in economics was, no surprise, auction theory. Milgrom went on to conduct further research on auction theory at Northwestern University, where his work addressing the unique, but still highly speculative and theoretical, issues arising from simultaneous auctions of multiple items was supported by the National Science Foundation. A 1982 Milgrom paper on single-item auctions is still considered the state of the art. Ironically, a 1981 paper on multi-item auctions was not accepted for publication until 1999.
In 1993, in part to raise additional revenue, Congress granted the Federal Communications Commission authority to conduct auctions to allocate portions of the “spectrum,” which is the range of electromagnetic radio frequencies used to transmit sound, data, and video across the country. It carries voice between cell phones, programing from broadcasters to your TV, and all types of data wirelessly over the Internet. The FCC’s goal was to create market efficiency to ensure the most effective possible development of consumer markets for communications and media.
Auctions may seem fairly straightforward, but they are far from it. Government auctions in particular need to account both for bidders’ varying needs and for their gaming strategies. And this was an extremely complex undertaking, as some companies would want to create large interstate networks, while some wished to serve smaller regional markets. The process needed to ensure both fairness and efficiency, and ensure competitive markets for consumers. And it would be very difficult to estimate the actual value of what was being sold. It was a simultaneous auction of multiple items (multiple frequency bands in different geographic locations), the kind of auction Milgrom had studied in theory. In this instance, however, the policy and economic stakes were large and not at all theoretical.
The FCC issued a “notice of proposed rulemaking” that suggested a process for the first auction. To ensure efficient allocation, the auction would need to be designed to ensure that bidder behavior revealed the worth and value of individual elements or a “package” of the spectrum.  The FCC notice was intended to provide that framework.
It contained considerable information about auctions, including scholarly work. Among the likely bidders was Pacific Bell, the telephone company serving California. When PacBell attorneys saw that Paul Milgrom’s work was cited as a basis for the impending auction, they contacted him to ask for his advice about bidding. When Milgrom saw the FCC’s proposal, he told PacBell that he could design a far better auction that would be both fair and improve efficiency. He went to his old thesis adviser, Robert Wilson, and together they developed an auction process called a simultaneous multiple round, or SMR, auction, also known as a simultaneous ascending-bid auction.
A similar idea was independently proposed by Preston McAfee, at the time an economics professor at the University of Texas and currently chief economist of Microsoft, who was consulting for Pacific Telesis. While McAfee is an American, his early work on auctions, much of it conducted with John McMillan of Stanford and the University of California at San Diego, had been funded by the Canadian government. This work was also highly theoretical, but McAfee was a strong advocate that economic theory should be applied to solving practical problems.
The FCC, knowing that this was uncharted territory, welcomed academic proposals for improving the auction. The FCC asked the three economists to work together, and they designed the first auction. While Wilson and Milgrom contributed the fundamental idea that all of the individual auctions should conclude simultaneously, McAfee’s work was especially important for dealing with other practical issues, such as how to address defaults by bidders and how to ensure participation by women- and minority-owned businesses. (Interestingly, PacBell and Pacific Telesis were in the midst of a corporate “divorce,” so McAfee and the other two economists could communicate with each other only through the FCC.)
Designing and implementing a novel auction method in the given time frame would have been nearly impossible without the foundation laid by the research conducted over the years by Wilson, Milgrom, McAfee and others. That first auction, which occurred in 1994, was a success and SMR auctions have been the method used for dozens of spectrum auctions in the U.S. and around the world, many supported by a company formed by Wilson, Milgrom, McAfee, and McMillan. Indeed, Paul Milgrom is working with the FCC on what will likely be its most complex auction yet – an “incentive” auction, planned for 2015, designed to meet the nation’s changing communications needs and technologies by encouraging the repurposing of spectrum currently controlled by television broadcast networks.
In addition to the FCC auctions, SMR auctions have been used to auction commodities as diverse as gas stations, airport slots, telephone numbers, fishing quotas, emissions permits, and electricity and natural gas contracts.
The FCC has conducted 87 spectrum auctions and has raised over $60 billion for the federal government, while also providing a diverse offering of wireless communication services to the public. These auctions have been called collectively the greatest auction in history.
The economic activity they have made possible, and the changes they have made in the way Americans live, seem incalculable – and not at all theoretical. Game theory has come a very long way indeed.
Here's my golden goose post from before the ceremony last year (and here from after, with a video), when I shared the award with David Gale and Lloyd Shapley, and here's a picture of the goose itself (you have to figure out which one is the goose).