Why markets fail — and how to fix them (ft. Nobel economist Alvin Roth)

Long before crypto made coordination programmable, Nobel Prize winner Alvin Roth was designing markets where coordination could save lives.  In this episode of First Principles, Roth tells the story of how he helped build systems for some of the hardest matching problems in the world, from where doctors train and where students go to school to how kidney donors can reach the patients who need them.  He joins Tim Roughgarden, Head of Research at a16z crypto, and Scott Kominers — Harvard Business School professor, a16z crypto research partner, and one of Roth’s former students — for a conversation about how market design moves from theory into the real world. They explore how economic theory becomes practical engineering, whether that's matching riders to Ubers, doctors to medical residencies, students to New York City high schools, or organ donors to people whose lives depend on it.  They also cover how these same problems show up in today’s crypto networks. Roth explains why markets are not just natural forces, but engineered systems; why the details of timing, congestion, incentives, and trust can make or break a marketplace; and why some of the most important markets are the ones where simply exchanging money can’t do the work.  This is a conversation about economics at its most practical and profound: how to design systems that coordinate people, solve real problems, and sometimes save lives.  00:00 Intro: Why market design matters 04:18 The economist as engineer  08:09 When theory meets the real world  07:02 Fixing the medical residency match  15:32 Why markets unravel  18:22 Redesigning NYC high school admissions  28:05 The hidden problem of congestion  34:47 How kidney exchange saves lives  45:26 How the internet changed market design  48:25 Airbnb, Uber and smarter marketplaces  51:28 Repugnant transactions and moral economics  53:32 When markets need social support  54:32 The unexpected effects of criminalizing surrogacy  01:04:58 Preference signals and the job market  01:18:53 A broken market: resettling refugees and other migrants  Hear more from:  Tim Roughgarden: https://twitter.com/Tim_Roughgarden  Scott Kominers: https://twitter.com/skominers  Follow a16z crypto:  X: https://twitter.com/a16zcrypto  LinkedIn: https://www.linkedin.com/showcase/a16zcrypto/posts/  YouTube: https://www.youtube.com/@a16zcrypto  Substack: https://a16zcrypto.substack.com/subscribe/ * ** As always, none of the following should be taken as investment, business, legal, or tax advice. Please see a16z.com/disclosures for more important information, including a link to a list of our investments. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.