Failure by Design
In my current book project Failure By Design, I examine the origins of the California energy crisis of 2000/01 to explore the practical limits of market design. Rather than studying the proximate causes of the crisis as much of the empirical literature does, I examine the crisis as a case of failed market design. Market design is an increasingly prevalent form of social engineering: utilizing the powers of transaction platforms, designers seek to enforce a desirable social logic as specified by idealized blueprints of market processes. I argue that this can be understood as a new form of organizational planning: a single agency must monitor and constrain the market to guarantee a continual alignment between blueprint and market process. As a particularly hard case of market design, the California case allows me to study the obstacles that this type of planning confronts. Based on material from several different archives and in-depth interviews, I reconstruct the structural preconditions that created incentives and opportunities for destructive behavior. Then, I ask how the social dynamics of market design work drove the decisions that created these structural preconditions. Specifically, I analyze three distinct domains of market design work: political negotiations, technical work to implement market design blueprints, and regulatory proceedings. This allows me to establish insights in mechanisms that prevent market designers from realizing their intellectual vision. By comparing the design processes in California with more successful design work elsewhere, I derive more general insights about the conditions for failure or success of market design. The implications of this research point beyond the historical case. Treating economics as a pragmatic enterprise of engineering rather than a scientific enterprise of explanation opens the possibility for a new type of sociology of economic engineering. The ability to relocate economic life onto software platforms creates unprecedented opportunities to control and monitor economic processes in real time. This leads to a proliferation of market design. The new sociology of economic engineering studies the prospects and dangers of this new form of economic planning – a timely and politically relevant enterprise. But the investigation of market design also promises to revise sociological assumptions about markets. By evaluating the possibilities and limits to plan market processes, we gain a different perspective on the fundamental question what the desirable attributes of market processes are and under what conditions they can be obtained.