Economic design tools

A market is a system through which parties complete a transaction to buy or sell a good or service, usually using money. Most markets evolve over time interacting strongly with developments in technologies that influence our ability to measure relevant attributes of goods and services, monitor outcomes and predict events.

There are many reasons that markets might not maximise wellbeing – there might be inadequate information for people to make good decisions, information may be too complex for people to process or there may be problems with relevant incentives for market participants. Sometimes the rules in the market (or the lack of rules) discourage people from participating or encourage strategic behaviour that adversely impacts of others. For many areas of Government services, markets have been too difficult to implement successfully because of important welfare and equity considerations.

With advances in economic theory and technology, it is now possible to overcome many of the problems that have previously prevented Government from using markets, or market-like institutions.

The discipline of economic design involves: careful diagnosis of market settings and the causes of market inefficiency; the application of economic theory to design and develop mechanisms needed to that address the specific complexities; testing and refining the mechanisms of interest in controlled and real world settings; and evaluation of performance against theoretical predictions.

Some of the benefits of well-designed markets, or market-like institutions, can include: higher incomes, greater choice, higher quality, lower prices, better targeted goods or services, and innovation.

Follow the links below to find out more about each economic design tool. Use the filters on the right to search for policy projects via economic design tools or focus areas.