Designing markets – 04/29/2023 – Rodrigo Zeidan

The quota law in Brazilian federal universities is a worldwide success in democratizing access to higher education. But it can be improved, as it may result in injustice for candidates who opt for reserved places.

Competition for these vacancies may end up being greater than for open vacancies, which are highly competitive, resulting in an unexpected situation: the Enem score required to pass the vacancies reserved for quota holders is higher than that to be approved for the open vacancies.

In fact, in the first half of 2019 alone, more than 10,000 quota applicants were rejected, even though they had a high enough score to be approved if they had not opted for some type of quota. The good news is that this problem is easy to solve, and there is already a bill in the Senate, 2017/23, that would completely eliminate this problem, based on the works of Aygün and Bó (2021) and Bó and Senkevics (2023) .

The analysis and solution to this problem in the rule used in the implementation of the quota law is an example of an area of ​​economics called market design. The success of this area is confirmed by the recent Nobel Prizes in economics in the years 2007, 2012 and 2020.

One of the factors that distinguish market design from other areas of economics is that many of its developments result in direct applications of the techniques developed there. The rules for radio spectrum auctions for 5G in the US, for example, were designed to allow different companies to operate in different regions, but without resulting in “holes” in the coverage they offer.

In this area of ​​economics, mathematical modeling and game theory are used to understand precisely the consequences of different rules that determine “who gets what”.

Another example of successful application of market design is the implementation of kidney transplants from living donors, such as family members. In the past, if a person needed a kidney and there was no family member with a compatible kidney for donation, the only solution was to wait for a brain-dead kidney to be donated.

But using a mathematical model that was previously used to determine the allocation of students to schools, researchers developed a matching grant system; members of a family can donate kidneys to others, as long as they are compatible, while a family member who needs a kidney receives one from another compatible living donor. In the US alone, hundreds of transplants per year have become possible through this new methodology.

In Brazil, there are many opportunities to use market design to expand access to public services. An intelligent integration of Sisu, Prouni and Fies has enormous potential to better meet the different needs of students, while at the same time expanding the impact of affirmative actions.

Improving the rules of programs such as Mais Médicos can expand medical care in more remote areas by taking into account the preferences and professional goals of doctors. Enrollment for middle and high school can also become simpler and more predictable.

Better market design saves lives, as well as increasing the efficiency of using scarce resources. It requires a lot of mathematical rigor and scientific creativity, but that’s what we do science for.

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