Market Failure in Kidney Exchange

Abstract

We show that kidney exchange markets suffer from market failures whose remedy could increase transplants by 30 to 63 percent. 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. (JEL D24, D47, I11)

What Matters for the Productivity of Kidney Exchange?

“…The improvements identified by these studies usually require deep institutional insights or theoretical work, with the production function implicitly governing the resulting benefits. Indeed, the marginal products for (immunologically easy to match) over-demanded and under-demanded pairs derived by Roth, Sönmez, and Ünver (2007) are qualitatively similar to the ones estimated by Agarwal et al (2017). These estimates are based on data from the NKR, and detailed knowledge of the logistics and algorithms used by the platform.…”

“…We study this market using the empirical production function approach developed in Agarwal et al (2017). This framework views a KE platform as a neoclassical firm-it procures inputs (patients and donors) from hospitals and uses them to produce an output (transplants).…”

“…This reformulation is based on institutional features of the market, specifically the reasons why transplants are a good numeraire in this market. Agarwal et al (2017) estimate this production function using data from the National Kidney Register (NKR).…”

The effect of the National Kidney Registry on the kidney-exchange market

“…Our study offers a timely discussion about the use of kidney-exchange networks. As noted by Agarwal et al (2019), the growth in NKR participation has slowed. The concerns over the efficiency of NKR include ethical and logistical issues (Ross et al, 2017), financial management problems (Rees et al, 2012), conflicting incentives (Ashlagi and Roth, 2014), and the risk to the health of living donors (Emara et al, 2008).…”

“…Ashlagi and Roth (2014) focused on expanding the original model, to an alternative that provides incentives for hospitals to register all of their patient-donor pairs in these national networks. Agarwal et al (2019) estimated the additional number of transplants from merging all kidney-exchange networks into the largest national network in the United States. Teltser (2018) estimated the additional number of transplants created from kidney exchanges using differences in the patient's local exchange activity over time.…”