Organizations and Markets

The Science of Design

11 January 2012 at 10:56 am Peter G. Klein 1 comment

| Peter Klein |

Rob King’s 2011 AAEA Presidential Address, “The Science of Design,” takes its cue from Herbert Simon.

[M]uch of what we do as economists is akin to what Simon calls natural science. We develop theories about how the economy works, and we conduct empirical studies that test these theories or estimate the parameters of key economic relationships that explain how general results derived from our theories manifest themselves in a particular context.We strive for results that explain what is or that predict what will be. . . .

Economists also design economic artifacts (e.g., markets, contracts, organizational structures, public policies) that reshape economic systems in order to better meet human needs. This work, which I will call economic design, is complementary with but differs fundamentally from economic analysis. While economic analysis is motivated by a question or a puzzle and focuses on explaining what is and predicting what will be, economic design is motivated by a problem or opportunity and focuses on what can be and ought to be or on what will yield a satisfactory outcome. . . .

While we are comfortable in recognizing “good science” in economic analysis, I believe we have devoted less attention to developing a shared understanding of “good science” in economic design.

It is certainly true that economists are increasingly involved in economic design (a trend that accelerated around WWII) though I am less sure this is a good idea. A lot of economic design — specifying “optimal” contracts, for example — might be considered the domain of entrepreneurs, not social scientists. But applied policy work is certainly of this character, so the essay may be read as a call for applied economists to pay closer attention to issues like decomposability, modularity, search, creativity, etc.  (See Dick’s work for rich discussions of these issues.)

Kudos to Rob for a thoughtful and intelligent piece. A friend calls it “perhaps the most interesting President’s Address from AAEA in the last 20 years.”

Entry filed under: - Klein -, Food and Agriculture, Institutions, New Institutional Economics, Public Policy / Political Economy.