Eduardo M. Azevedo

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.

We propose a criterion of approximate incentive compatibility, strategy-proofness in the large (SP-L), and argue that it is a useful second-best to exact strategy-proofness (SP) for market design. Conceptually, SP-L requires that an agent who regards a mechanism’s “prices” as exogenous to her report – be they traditional prices as in an auction mechanism, or price-like statistics in an assignment or matching mechanism – has a dominant strategy to report truthfully. Mathematically, SP-L weakens SP in two ways: (i) truth-telling is required to be approximately optimal (within epsilon in a large enough market) rather than exactly optimal, and (ii) incentive compatibility is evaluated ex interim, with respect to all full-support i.i.d. probability distributions of play, rather than ex post wit...

Published: Eduardo M Azevedo & Eric Budish, 2019. "Strategy-proofness in the Large," Review of Economic Studies, Oxford University Press, vol. 86(1), pages 81-116. citation courtesy of