Market Failure in Kidney Exchange

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

NBER Working Paper No. 24775
Issued in June 2018, Revised in July 2019
NBER Program(s):Economics of Aging, Health Care, Health Economics, Industrial Organization

We show that kidney exchange markets suffer from market failures whose remedy could increase transplants by 30%–63%. 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 only partly internalize their patients' benefits from exchange, and current platforms suboptimally reward hospitals for submitting patients and donors. Third, we calibrate a production function and show that individual hospitals operate below efficient scale. Eliminating this inefficiency requires either a mandate or a combination of new mechanisms and reimbursement reforms.

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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Document Object Identifier (DOI): 10.3386/w24775

Published: Nikhil Agarwal & Itai Ashlagi & Eduardo Azevedo & Clayton R. Featherstone & Ömer Karaduman, 2019. "Market Failure in Kidney Exchange," American Economic Review, vol 109(11), pages 4026-4070. citation courtesy of