NBER

Market Failure in Kidney Exchange

Nikhil Agarwal, Itai Ashlagi, Eduardo Azevedo, Clayton R. Featherstone, Ömer Karaduman

Bibliographic Information

NBER Working Paper No. 24775
Issued in June 2018
NBER Program(s):AG, HC, HE, IO

A non-technical summary of this paper is available in the 2018 number 4 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

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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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