In technologically interdependent economic systems inefficiencies can easily arise from allocations contrived through independent bilateral negotiations. We can challenge this problem with the ‘smart market’: a coordination center applies optimization algorithms to private bids and offers submitted by decentralized agents to compute prices and allocations. This paper presents the laboratory development of a market institution for trading natural gas in a pipeline network. The institution has evolved over the past five years through thousands of hours of cash-motivated subject participation, professional analysis and continuous repro- gramming. It is not a trivial matter to engineer the most efficient market possible when subtle nuances in institutional rules can affect outcomes. Yet doing so in the laboratory is much less costly than a potentially failed field experiment.
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