Marketplaces are often small parts of large markets, and so potential marketplace participants may have large strategy sets, that include actions taken outside of the marketplace. And markets require social support, so the behavior of people who do not intend to participate in the market may nevertheless be important for market design. This talk will illustrate these points with some examples, drawing on experience from the design of school choice systems and kidney exchange clearinghouses.

Feeding America distributes food to food banks across the United States. In 2005, it transitioned from a centralized allocation process to one where local affiliates would bid for food items through an online auction mechanism. To do so, it constructed a specialized currency called “shares”. The change, its necessary idiosyncrasies, and outcomes are described here. We both show that the new system exhibits desirable theoretical properties, and document considerable welfare implications. The choices of the food banks vary enormously from the allocations they received under the old system, and much of this gain is from sorting of food banks along the quality-quantity dimension. Furthermore, supply of food rose by roughly 100 million pounds around the time of its introduction. A structural exercise estimates that the value of reallocated demand effectively meant that each pound of food allocated through this system increased efficiency by almost another additional pound.