Trading kidneys, repugnant markets and stable marriages win the Nobel Prize in Economics

Roth and Shapley charted a course for economists to go beyond simply arguing for markets in everything.

The 2012 Nobel Prize in Economics - technically the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, but nobody cares - has been awarded to two American Economists, Alvin Roth and Lloyd Shapley "for the theory of stable allocations and the practice of market design". The Nobel Committee explains what that means:

This year's Prize concerns a central economic problem: how to match different agents as well as possible. For example, students have to be matched with schools, and donors of human organs with patients in need of a transplant. How can such matching be accomplished as efficiently as possible? What methods are beneficial to what groups? The prize rewards two scholars who have answered these questions on a journey from abstract theory on stable allocations to practical design of market institutions.

Lloyd Shapley used so-called cooperative game theory to study and compare different matching methods. A key issue is to ensure that a matching is stable in the sense that two agents cannot be found who would prefer each other over their current counterparts. Shapley and his colleagues derived specific methods – in particular, the so-called Gale-Shapley algorithm – that always ensure a stable matching. These methods also limit agents' motives for manipulating the matching process. Shapley was able to show how the specific design of a method may systematically benefit one or the other side of the market.

Alvin Roth recognized that Shapley's theoretical results could clarify the functioning of important markets in practice. In a series of empirical studies, Roth and his colleagues demonstrated that stability is the key to understanding the success of particular market institutions. Roth was later able to substantiate this conclusion in systematic laboratory experiments. He also helped redesign existing institutions for matching new doctors with hospitals, students with schools, and organ donors with patients. These reforms are all based on the Gale-Shapley algorithm, along with modifications that take into account specific circumstances and ethical restrictions, such as the preclusion of side payments.

Even though these two researchers worked independently of one another, the combination of Shapley's basic theory and Roth's empirical investigations, experiments and practical design has generated a flourishing field of research and improved the performance of many markets. This year's prize is awarded for an outstanding example of economic engineering.

The committee have yet again reaffirmed the old adage that the most important thing to do when trying for a nobel prize is to live long enough that your achievements are recognised. The Gale-Shapley algorithm, for instance, was devised in 1962, when Lloyd Shapley was 34. It concerns a maths problem known as the stable marriage problem: if you have an even number of men and women, can you always come up with a set of marriages where there are no two people of opposite sex who would both rather have each other than their current partners? (1960s maths problems: usually heteronormative.) If you can, then the marriage is "stable".

The Gale-Shapley algorithm is a way of always ensuring stable matches; and much of Shapley's work covers the same areas, straddling the boundaries between economics, mathematics, and computer science.

Roth is the younger of the two winners, and works in a far more empirical sphere. As the committee points out, although the two men never actually collaberated, Roth took Shapley's theoretical work and applied it to actually existing markets. For instance, Roth used the Gale-Shapley agorithm to ease the kidney shortage in the US. David Wessel explains (£):

As of noon yesterday, 58,470 people in the U.S. were waiting for a kidney transplant. Most won't get one this year. There aren't enough donated kidneys to go around. Surgeons transplanted just 15,129 kidneys last year. Now a band of transplant surgeons and economists are trying to fix that by creating a moneyless market for exchanging kidneys. Most transplanted kidneys come from a person who has died, a supply that grows slowly because of ignorance about the need for donations or grieving relatives' reluctance. But a kidney taken from a live donor works better, and almost everyone has a spare. As techniques improve for removing healthy kidneys and for suppressing the body's tendency to reject a transplant, doctors increasingly turn to kidneys from living donors, usually relatives. Last year, 43% of kidneys transplanted in the U.S. came from living donors, up from 28% a decade ago. But a biological barrier often blocks a transplant from a relative. In about a third of all would-be pairs, blood types are incompatible. In others, the sick person has antibodies that can initiate a rejection of the donated organ. It's heartbreaking "to have the treasure of the live donor and then have that not go forward because of a biological obstacle," says Massachusetts General Hospital transplant surgeon Francis DelMonico.

Occasionally, transplant centers spot a way out: One New England father with blood type A couldn't donate a kidney to his daughter with blood type B. So he gave a kidney to a teenager with blood type A, and the teenager's sister gave a kidney for the man's daughter. New England's transplant centers have done six such exchanges. Baltimore's Johns Hopkins University has done seven.

The crucial thing about Roth's work, from an economic point of view, is that it involves finding stable allocations using market-like situations without involving money. The kidney swaps in the New England situation are market-like, trading kidneys for kidneys in a way that makes all parties better-off, but they don't actually require kidneys to be bought and sold.

We can see the importance of this by looking at another paper of Roth's, not cited by the committee, on repugnance in markets (pdf). Roth demonstrates that some markets are limited because the very existance of a market in some goods is considered repugnant. He argues, for instance, that the trade in horse meat being banned in California is not done through fears that eating horse meat is unsafe; nor is it done for animal welfare reasons, since it is still legal to farm and kill horses. But banned it is, and Roth argues that the natural response of economists to situations of this type - to argue for freer markets - is wrong, since it ignores the very strong feelings involved in the situation. Instead:

Being aware of the sources of repugnance can only help make such discussions more productive, not least because it can help separate the issues that are fundamentally empirical—like the degree of crowding out of altruistic donations that might result from different incentive schemes compared to how much new supply might be produced—from areas of disagreement that are not primarily empirical.

Hopefully his new Nobel Prize should give that argument greater weight in the years ahead.

A patient receives a kidney in Johns Hopkins university in Baltimore. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Tony Blair might be a toxic figure - but his influence endures

Politicians at home and abroad are borrowing from the former prime minister's playbook. 

On 24 May at Methodist Central Hall, Westminster, a short distance from where he once governed, Tony Blair resurfaced for a public discussion. Having arrived on an overnight flight, he looked drawn and puffy-eyed but soon warmed to his theme: a robust defence of liberal globalisation. He admitted, however, to bafflement at recent events in the world. "I thought I was pretty good at politics. But I look at politics today and I’m not sure I understand it."

Blair lost power in the summer of 2007. In the ensuing nine years, he lost reputation. His business ventures and alliances with autocrats have made him a pariah among both the public and his party. A YouGov poll published last year found that 61 per cent of voters regarded Blair as an electoral liability, while just 14 per cent viewed him as an asset. In contrast, John Major, whom he defeated by a landslide in 1997, had a neutral net rating of zero. It is ever harder to recall that Blair won not one general election (he is the only living Labour leader to have done so) but three.

His standing is likely to diminish further when the Iraq inquiry report is published on 6 July. Advance leaks to the Sunday Times suggest that he will be censured for allegedly guaranteeing British military support to the US a year before the invasion. Few minds on either side will be changed by the 2.6 million-word document. Yet its publication will help enshrine Iraq as the defining feature of a legacy that also includes the minimum wage, tax credits, Sure Start, devolution and civil partnerships.

Former leaders can ordinarily rely on their parties to act as a last line of defence. In Blair’s case, however, much of the greatest opprobrium comes from his own side. Jeremy Corbyn inclines to the view that Iraq was not merely a blunder but a crime. In last year’s Labour leadership election, Liz Kendall, the most Blair-esque candidate, was rewarded with 4.5 per cent of the vote. The former prime minister’s imprimatur has become the political equivalent of the black spot.

Yet outside of the Labour leadership, Blairism endures in notable and often surprising forms. Sadiq Khan won the party’s London mayoral selection by running to the left of Tessa Jowell, one of Tony Blair’s closest allies. But his successful campaign against Zac Goldsmith drew lessons from Blair’s election triumphs. Khan relentlessly presented himself as “pro-business” and reached out beyond Labour’s core vote. After his victory, he was liberated to use the B-word, contrasting what “Tony Blair did [in opposition]” with Corbyn’s approach.

In their defence of the UK’s EU membership, David Cameron and George Osborne have deployed arguments once advanced by New Labour. The strategically minded Chancellor has forged an unlikely friendship with his former nemesis Peter Mandelson. In the domestic sphere, through equal marriage, the National Living Wage and the 0.7 per cent overseas aid target, the Conservatives have built on, rather than dismantled, significant Labour achievements."They just swallowed the entire manual," Mandelson declared at a recent King’s College seminar. "They didn’t just read the executive summary, they are following the whole thing to the letter."

Among SNP supporters, "Blairite" is the pejorative of choice. But the parallels between their party and New Labour are more suggestive than they would wish. Like Blair, Alex Salmond and Nicola Sturgeon have avoided income tax rises in order to retain the support of middle-class Scottish conservatives. In a speech last August on education, Sturgeon echoed the Blairite mantra that "what matters is what works".

Beyond British shores, political leaders are similarly inspired by Blair – and less reticent about acknowledging as much. Matteo Renzi, the 41-year-old centre-left Italian prime minister, is a long-standing admirer. "I adore one of his sayings,” he remarked in 2013. “I love all the traditions of my party, except one: that of losing elections."

In France, the reform-minded prime minister, Manuel Valls, and the minister of economy, Emmanuel Macron, are also self-described Blairites. Macron, who in April launched his own political movement, En Marche!, will shortly decide whether to challenge for the presidency next year. When he was compared to Blair by the TV presenter Andrew Marr, his response reflected the former prime minister’s diminished domestic reputation: “I don’t know if, in your mouth, that is a promise or a threat.”

The continuing attraction of Blair’s “third way” to European politicians reflects the failure of the project’s social-democratic critics to construct an alternative. Those who have sought to do so have struggled both in office (François Hollande) and out of it (Ed Miliband). The left is increasingly polarised between reformers and radicals (Corbyn, Syriza, Podemos), with those in between straining for relevance.

Despite his long absences from Britain, Blair’s friends say that he remains immersed in the intricacies of Labour politics. He has privately warned MPs that any attempt to keep Corbyn off the ballot in the event of a leadership challenge would be overruled by the National Executive Committee. At Methodist Central Hall, he said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.”

It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.

It instead endures in a fragmented form as politicians at home and abroad co-opt its defining features: its pro-business pragmatism, its big-tent electoralism, its presentational nous. Some of Corbyn’s ­allies privately fear that Labour will one day re-embrace Blairism. But its new adherents would never dare to use that name.

George Eaton is political editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad