Market Design: Lessons from Traditional Weddings

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Mar 11 2013, Posted by InReality
Uzbek Palov
Image Credit: Lola Elise (C)
The Happiest Moment In Life Image Credit: Sandjar Kozubaev (C) via Instagram

The Happiest Moment In Life
Image Credit: Sandjar Kozubaev (C) via Instagram

Earlier last year, I travelled to Tashkent, Uzbekistan, which is my hometown. My trips home are usually full of emotion because they happen so rarely, but this time was truly special. My baby sister was getting married. Needless to say, my whole stay was an emotional rollercoaster: tears, laughs, reunions and even a random food poisoning to top it off.

Weddings are a special occasion in any culture but in traditional societies, they are even more special. In many ways, they are the cornerstone of culture, rich with rituals, stories and artifacts. A wedding is also a carefully orchestrated multi-day event. In a developing country, it would seem that it should be a  logistical nightmare to put together, but it isn’t. Almost every ritual has been performed for centuries so at every wedding, behind the apparent chaos there is a well-established system of relationships, transactions and mechanisms. On the surface it looks spontaneous, but behind the scenes it’s like clockwork. After it was all over, I started to wonder if we can learn something about market mechanisms from traditional communities. Weddings might be the best place to look for insights.

A financial market without a bank

I won’t go into the details of a traditional Uzbek wedding, but one of the main challenges of a wedding is the financial resources it takes to marry off children, which traditionally has been the parents’ responsibility. Relative to the disposable income of any family, the cost of a wedding is prohibitive. Many parents start saving up for the special day as soon as the child is born, especially if it’s a girl. In a developed economy, you have some options. You can save up more cash by reducing your consumption or you can take a loan from a bank. But these options are usually not available in the developing world. Moreover, people tend to get married earlier so they are not at their peak level of productivity to offer any financial help to the parents. This is where the community steps in.

Essentially, the community around the family that hosts the wedding acts like a local bank. According to the tradition, family members and friends bring monetary gifts to the head of the household who holds the wedding. It’s like any other wedding gift except that both parties know that it has “strings” attached. Both parties fully expect that this financial gift needs to be returned when it’s the gift giver’s turn to host a wedding. At that time, the gift is returned fully and in some cases with additional “interest” as a sign of appreciation and respect for the original gift. The system is extremely simple; there are no contracts, no promises and relatively small risks. It is self-sustaining, and this “market” continues to function without any outside regulation. Economic necessity created a financial service that could hardly exist in a classic market setting. In fact, one could argue that this is the purest form of a market.

Uzbek Palov Image Credit: Lola Elise (C)

Uzbek Palov
Image Credit: Lola Elise (C)

Food for rent

Another beautiful tradition in Uzbek culture is the morning palov (aka pilaf, plov, osh), which is a rice dish that is served on special occasions. It is simply delicious! The occasion for a palov can be anything from a new birth, wedding, death, or any other culturally significant event. The host of the household invites his friends and family to celebrate the occasion with a meal and a prayer in the morning. A typical palov function hosts 200 to 300 people although size can vary. Again, the logistics of hosting such a function is quite challenging. There are restaurants that specialize exclusively in such events.

I want to explain how tables are set at these events, because it’s important in this context. Instead of serving appetizers, meals and deserts in sequence like it’s done in the West, everything is set on the table at once. The more food on the table the better. The only food that’s not served right away is the actual palov. It’s an enormous amount of food for the host to purchase and potentially waste.

What used to happen is that the hosts would buy the provisions and collect the leftovers at the end of the event. It works well with non-perishable foods like dried fruit or candies, but fresh fruits and vegetables would often be wasted because there was just too much. It becomes even more difficult in the winter when fruits command a premium price. These conditions set a stage for a service that I have not seen before at these events – fruits and snacks for rent. It works exactly like it sounds. You rent the fruits and snacks for 3-4 hours and at a specific price; plus you pay a fee for any food that ends up being consumed during the function. All food is collected at the end of the function, everything is counted and to determine the final fee. It’s an extremely efficient model that saves money both for the host and provides an extra revenue source for the vendor who will later sell the fruits on the market.

Market design at work

You may have heard of the work of Lloyd Shapley, an economist at UCLA, and Al Roth, of Harvard University. Their pioneering work in market design recently earned them a Nobel Prize in economics. Here is anexcellent piece by Joshua Gans explaining the nature of this work. Roth and Shapley’s research shows how one can apply simple principles to match participants in markets where it’s very difficult to do (e.g. singles looking to get married) or where price mechanisms cannot be used for various reasons. This is called market design and it works based on the following four principles:

1. Market thickness – lots of buyers and sellers
2. Lack of congestion – transaction speed is efficient relative to its volume (no long waits)
3. Market safety – everyone has an incentive to play a fair game
4. Avoidance of “repugnance” – non-interference of other social and moral values that disrupt the functioning of the market

A Food-for-Rent Vendor Tallying Up the Goods. Image Credit: Sandjar Kozubaev (C)

A Food-for-Rent Vendor Tallying Up the Goods.
Image Credit: Sandjar Kozubaev (C)

What the economists have shown is that if you can meet those four principles, you can match market participants even in the most complex situations. It’s a brilliant concept and it works in real life. No wonder it caught the attention of the Nobel Prize committee.

Thinking back to the market examples from my sister’s wedding, I wonder if traditional societies can help us apply market design principles more effectively. Can we leverage traditional institutions and relationships to design better services? Creating new institutions might be needed in completely new markets, say like organ transplantation. However, it may be easier to design new services within existing social structures, especially when we can use technology. What if we could have a hyper-local banking system that was completely peer-to-peer? What if we could significantly reduce our consumption of resources if we shared more often? Traditional communities develop elegant solutions out of necessity. People rely on each other because it’s their best option. We can use the same approach to design more resilient markets and communities. After all, we have the longevity of culture, and the scalability of technology on our side.

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