“This decision by the German Council of Science and Humanities confirms our assessment that market and institutional design is gaining importance both as a subject of research and as an element of economic policy advising. The decision is a huge step forward in terms of embedding this area of study in ZEW’s activities over the long term,” says ZEW President Professor Achim Wambach.
As a first step to establishing this area of study at ZEW, the institute previously set up a “Market Design” Research Group, which is currently receiving start-up financing from the state of Baden-Württemberg until the end of 2018. “With the announced positive decision by the German Council of Science and Humanities, we are now closer to expanding the group into a research department, thus providing a more permanent basis for its activities. This will also allow us to adopt market design methods in other research units at ZEW,” says ZEW’s Director Thomas Kohl in welcoming the decision.
Market design research is gaining in importance
Researchers working in the area of market and institutional design aim to develop, simulate and test rules and arrangements that enable stable and well-functioning markets and institutions. They also aim to advise policymakers and provide scientific assistance with the adoption of such rules and arrangements in real-world settings. Assuring competitiveness and creating favourable conditions for innovation are just two of the goals that are pursued in this area of study. In an initial step, ZEW researchers analyse existing markets with a view to defined goals. If they see that a given market is incomplete, then in the subsequent design phase they develop market rules and institutions that are suitable for addressing the diagnosed deficiencies. Market and institutional design methods can be applied to a wide range of topics, including broadband network expansion, power markets, markets for emissions certificates, bond markets, public procurement, and arrangements for awarding spots at preschools and universities, among many others.
Against the backdrop of the changes being wrought by digitalisation, the question of how to design markets in an optimal fashion has become increasingly important to policymakers. With an ever larger share of economic transactions being conducted in digital marketplaces, their significance to society has grown profoundly. It is therefore of great relevance to economic and social policy to explore the optimal design of such markets.
With its aim of a becoming a centre of competence for market design issues, ZEW is striving to overcome the current fragmentation of the European research environment in this area. Furthermore, a European perspective when conducting such research is important, as most of the markets being considered – including energy, capacity, emissions, and telecommunications markets – are of relevance across Europe, and thus cannot be considered in isolation. ZEW’s long-standing research interest in analysing well-functioning markets and institutions in Europe is thus to be extended by the study of the optimal design of such markets and institutions.