This CAREER project consists of research and educational projects centered around the empirical analysis of auction and matching markets. The development of the Internet and surrounding computing and communication technologies have led to an explosion in the use of auctions or other mechanisms to set prices and match buyers and sellers in markets for many diverse goods and services. Although there have been considerable advances in economic theories of how such market mechanisms work, empirical work so far has been limited by the availability of data and the realism of economic models utilized to depict real-world environments. The research component of the project will conduct in-depth empirical studies of three distinct but important market settings where data is available and the gap between theory and empirics is surmountable. The first research project in the agenda will focus on the ERCOT (Electricity Reliability Council of Texas) electricity balancing market. This is a market where electricity generators submit hourly supply bids to increase or decrease production to meet short-term fluctuations in electricity demand. Utilizing very detailed data on the bidding behavior of generation firms, along with engineering estimates of their marginal costs of producing electricity, the study will test economic theories of strategic behavior by the firms, with a focus on assessing the extent to which firms utilize market power, and how this impacts the productive efficiency achieved by a market that serves 20 million electricity users in Texas. The second research project studies auctions conducted by the Bank of Canada to sell Government of Canada bills and bonds. Again utilizing a very detailed bidder-level data set, the study will focus on analyzing the impact of restricting participation to these auctions to a set of certified government securities dealers. In particular, the study will investigate the complex interactions between securities dealers who are allowed to bid in the auction directly, and non-dealer investors who can only place bids through securities dealers. The study also aims to quantify the impact of proposed mergers between securities dealers on the public debt financing costs of the Government of Canada. The third research project shifts attention to a somewhat more controversial, but equally interesting market setting, that of Internet matchmaking. The aim of the project is to develop empirical methods to infer a diverse group of individuals' preferences over their potential match partners, based on data on the search and matching behavior of users on an online dating site. Based on our estimates of these preference patterns, we will then compare the efficiency of the particular matching protocol utilized on this site to the efficiency of matches obtained using theoretically motivated matching protocols, quantifying potential gains to improved market design. The educational component of the CAREER project aims to teach future generations of "market designers" how to utilize the rapidly developing toolbox of theoretical and empirical tools to analyze and formulate policy in many other important markets. Towards this aim, the PI will develop and teach a new graduate course on applied market design. To further undergraduate education in this rapidly advancing field, the PI will undertake an interdisciplinary collaboration with the University of Chicago computer science department to develop an online auction environment. Classroom experiments and demonstrations on this online environment will be integrated into the curriculum of undergraduate microeconomics and industrial organization courses taught by the PI to allow students to gain a working knowledge of real-world auction and pricing mechanisms
