Designing Markets with Complex Constraints

The paper presented in this ZEW Lecture on Economic Policy will consider the general problem of pricing in markets with complex constraints. Such constraints are present in most of nowadays markets including the ones for electricity, for transportation, and for spectrum licenses. The talk will cover several papers. First, the design of a real-world market for the reallocation of fishery access rights is used to motivate several problems in the computation of market prices. Then, a new paper in which prices are computed in the presence of budget constraints is discussed. Budget constraints are an important concern in many of these markets, but they have not been considered in competitive equilibrium theory. While the allocation and pricing problem in most real-world markets is already NP-hard with payoff- maximizing bidders, it is even higher in the polynomial hierarchy if buyers are financially constrained. The talk outlines mathematical models and algorithms to compute core-stable prices, as well as computational results. Overall, the presentation sheds light on the many connections between computation and economics that become apparent in the design of marketplaces.