The start of the twenty-first century has witnessed some striking examples of market successes and market failures. Companies such as Google and Facebook have challenged conventional economic wisdom with profitable business models that revolve around providing free services to their users. At the same time, the .com crisis, the global financial crisis, and the recent Euro crisis are reminders that markets and even entire economies can fail, exposing firms, banks, and countries to the perils of bankruptcy and causing massive welfare losses. Why do some institutions fail while others succeed, how can success be maintained, and how can broken institutions be fixed?
The “Engineering Social and Economic Institutions” (ESEI) Center at the University of Zurich was established in August 2010 to study the design and creation of improved institutions using an approach that combines theory, laboratory experiments, and practical policy. The focus at ESEI is to solve major open design problems and to gain an improved understanding of new mechanisms for auctions, trading, matching, voting, social learning and networking. The aim is to advance our scientific knowledge and to provide practitioners with implementations that have been thoroughly tested in the laboratory. A large body of experimental research has uncovered empirical regularities not predicted by theory, creating a central role for “wind tunnel” testing of alternative institutions. The combination of mechanism design and wind tunnel testing defines our “engineering” approach to the design of better social and economic institutions.