Market Failure in Kidney Exchange

53 Pages Posted: 6 Jul 2018

See all articles by Nikhil Agarwal

Nikhil Agarwal

Massachusetts Institute of Technology (MIT) - Department of Economics; Yale University - Cowles Foundation

Itai Ashlagi

Stanford University - Management Science & Engineering

Eduardo M. Azevedo

University of Pennsylvania - The Wharton School

Clayton Featherstone

Stanford University - Department of Economics

Omer Karaduman

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Date Written: June 2018

Abstract

We show that kidney exchange markets suffer from traditional market failures that can be fixed to increase transplants by 25%-55%. First, we document that the market is fragmented and inefficient: most transplants are arranged by hospitals instead of national platforms. Second, we propose a model to show two sources of inefficiency: hospitals do not internalize their patients’ benefits from exchange, and current mechanisms sub-optimally reward hospitals for submitting patients and donors. Third, we estimate a production function and show that individual hospitals operate below efficient scale. Eliminating this inefficiency requires a combined approach using new mechanisms and solving agency problems.

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Suggested Citation

Agarwal, Nikhil and Ashlagi, Itai and Azevedo, Eduardo M. and Featherstone, Clayton and Karaduman, Omer, Market Failure in Kidney Exchange (June 2018). NBER Working Paper No. w24775. Available at SSRN: https://ssrn.com/abstract=3206450

Nikhil Agarwal (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Itai Ashlagi

Stanford University - Management Science & Engineering ( email )

473 Via Ortega
Stanford, CA 94305-9025
United States

Eduardo M. Azevedo

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://www.eduardoMazevedo.com

Clayton Featherstone

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Omer Karaduman

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

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