Transplant Market Concentration and the Underutilization of Viable Donors: Theory and Evidence from Liver Transplants

There is currently a queue of over 100,000 people waiting for organ transplantation in the United States. Despite this apparent shortage, transplant surgeons routinely reject organs offered from deceased donors. One explanation is that surgeons, acting as perfect agents for their patients, balance the decision to accept or reject organs between the quality of the available organ versus the risk to the patient from waiting for a higher quality offer. If surgeons are imperfect agents, however, physicians may also consider the additional effort costs versus increased revenue associated with transplanting more moderate-quality organs. In this paper, we present a theoretical model of physician decision-making which incorporates these underlying components, as well as variation in market concentration of surgeons. We show that market concentration impacts the quality threshold only if physicians are imperfect agents and that market concentration decreases the number or transplants by increasing the surgeon's quality threshold. However, the relationship between the imperfect agent's quality threshold and a perfect agent's socially optimal threshold depends on whether effort costs on the margin dominate financial remuneration. We then use variation in competition across geographic organ allocation regions to test for empirical evidence consistent with imperfect physician agency. We find that that increased concentration indeed increases a surgeon's quality threshold and that lower quality organs flow from higher concentrated markets to lower concentrated markets. We also observe an increased risk of mortality for waiting patients in higher concentration markets, suggesting that low levels of competition reduces the use of viable organs.