Does Market Theory Apply to Biology?

Traditionally, market models in economics describe interactions in which the commodities traded are subject to complete contracts that are enforceable at no cost. Such contracts do not exist among other animals. In conventional economic models, there is also no account of who meets whom, what the traders know, and how they settle on a transaction, whereas these aspects play a major role in biological market models. From this point of view, the scope for applying market theory to biology appears very limited. Recent developments in economics, however, may allow for fruitful interdisciplinary cooperation. These developments include what one leading economist termed “the abrogation of the law of supply and demand” accomplished by the introduction of principal agent models, based on the incomplete nature of contracts and the traders’ limited information. There is an important convergence of thought in both disciplines, and biologists have recently identified a variety of interesting examples beyond the basic mating market. Some of these examples resemble labor markets and may be illuminated principal agent models. A look at the mating market shows that adopting an economist’s perspective provides a comprehensive model of the market, the components of which are now well understood by biologists. Finally, there are striking parallels between the signaling games studied in biology and economics, the value of education and the peacock’s tail having much in common.