Matching markets

In most markets, the allocation of goods and services is determined by individuals’ ability and willingness to pay. Sometimes the allocation achieved through markets will not align with broader equity or social priorities. This can be observed in areas such as human organ transplants, student placement, public housing and childcare placement. In these instances, we can change the allocation of goods and services by changing the rules of exchange to specifically exclude an individuals’ ability to pay.

There have been significant advances in matching market design – the 2013 Nobel Prize was awarded to Lloyd Shapley and Alvin Roth for developing the theoretical basis for matching markets. This means that it is now possible to design new institutions that efficiently match participants, in transactions that do not involve monetary valuations – to determine ‘who gets what’, in a way that is fair, and reflects the value that people place on goods and services. The use of matching algorithms can help to capture some of the benefits of markets, by improving choice and engagement by users, and improving information – and ultimately, improving the outcomes that people experience by interacting.

Matching markets have been used successfully in various contexts in the US and UK (kidneys, medical intern placement, student placements), and are beginning to be used in Australia.