Health Care

Market Failure in Kidney Exchange

Peer-reviewed Publication

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

November 2019

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.