Traditional economics views markets as simply the confluence of supply and demand. A new field of economics, known as “market design,” recognizes that well-functioning markets depend on detailed rules. For example, supply and demand drive both stock markets and labor markets, but someone who wants to buy or sell shares in a company goes through very different procedures from those followed by a job seeker or an employer. Moreover, labor markets work differently from one another: Doctors aren’t hired the way lawyers, professional baseball players, or new MBAs are. Market designers try to understand these differences and the rules and procedures that make various kinds of markets work well or badly. Their aim is to know the workings and requirements of particular markets well enough to fix them when they’re broken or to build markets from scratch when they’re missing.

Market designers have already had an impact on kidney exchange, the hiring of new doctors, school choice programs, and auctions of radio spectrum. Internet job markets and markets for takeoff and landing slots at airports are among the many other areas in which market malfunctions are likely and thus adjustments informed by the insights of this new discipline will be called for.

Two developments in economics came together to form the field of market design. One was game theory—the study of the “rules of the game” and the strategic behavior that they elicit. By the 1990s it had matured to the point where it could offer practical guidance. In this it was helped by another new methodology, experimental economics, which provided tools both for testing the reliability of game theory’s predictions and for testing market designs before introducing them into operating markets. A primary motive for market design is the need to address market failures.

To function properly, markets need to do at least three things.

1. They need to provide thickness—that is, to bring together a large enough proportion of potential buyers and sellers to produce satisfactory outcomes for both sides of a transaction.

2. They need to make it safe for those who have been brought together to reveal or act on confidential information they may hold. When a good market outcome depends on such disclosure, as it often does, the market must offer participants incentives to reveal some of what they know.

3. They need to overcome the congestion that thickness can bring, by giving market participants enough time—or the means to conduct transactions fast enough—to make satisfactory choices when faced with a variety of alternatives.

I’ll focus on several market-design projects that my colleagues and I have undertaken after a market’s failure to do one of these things caused a breakdown. Two of them, with their roots in the 1990s, were the design of labor clearinghouses, such as the one through which U.S. doctors get their first jobs, and the design of the auctions through which the Federal Communications Commission sells licenses for different parts of the radio spectrum.