Economic engineering is the science of designing real-world institutions and mechanisms that align individual incentives and behavior with the underlying goals. Cooperation represents one such goal and is essential for the functioning of societies, economies and organizations. Yet, people often fail to contribute to the greater good. With inadequate institutions and without mechanisms to promote cooperation, the outcome can be bleak or even catastrophic (Ostrom, Elinor. 1990. “Governing the Commons: The Evolution of Institutions for Collective Action.” Cambridge University Press.). This project generates important knowledge to improve the functioning of modern markets and organizations, and at the same time opens new horizons in the sciences of cooperation and “behavioral economic engineering”.
One work package studies the design of mechanisms to address cooperation problems that are inherent in specific markets. For example, mechanisms to promote cooperation in addressing the climate crisis, traffic congestion, energy scarcity and to avoid a wasteful arms race for speed in financial markets. We develop and study economic designs of markets and choice architectures that mitigate or solve such challenges.
The other work package studies the descriptive nature of ethical and related constraints to market and organizational design as imposed by human decision makers. For instance, people sometimes have a distaste for certain types of transactions, such as organ exchanges and the purchase of pollution rights in climate markets. We build models that capture such behaviors and make use of incentivized laboratory and field experiments to examine the underlying motivational and cognitive mechanisms empirically. Furthermore, we investigate the design features in markets and organizations that alleviate such constraints.
