Contract Development in a Matching Market: The Case of Kidney Exchange
I INTRODUCTION Markets arise in unexpected places. Take, for example, the case of kidney donation. Although the common conception of kidney donation is one of gift exchange, modern kidney donation is better characterized as a market. Kidney exchange is not, however, a commodity market, in which price determines who gets what. Rather, kidney exchange is a matching market in which money does not change hands and market participants care with whom they transact in other words, participants must be matched, through either individual search or intermediary involvement. Given that kidney exchange is a matching market, one might also expect to observe the widespread use of an instrument common to markets formal contract. Although markets can and do flourish under all conditions, including in the absence of third party contract enforcement, markets in which exchange requires significant present investment in the expectation of future return are more likely to emerge and persist when institutions exist to protect property and contractual rights. Yet formal contract so far has played only a limited role in kidney exchange. This article discusses a new development in kidney exchange, the Advanced Donation Program (ADP) that permits a living kidney donor to donate a kidney in advance for the later benefit of a designated beneficiary who may or may not be in renal failure at the time of the donation. Referred to by some as a kidney "gift certificate," "layaway plan," or "voucher," (1) ADP builds on the matching market principles that are fundamental to modern day kidney exchange. But ADP, because of the advanced nature of the donations, pushes the market analogy even further, relying for the first time on a present investment (in the form of a healthy kidney) by donors who have an expectation of future return (in the form of a compatible kidney for a friend or loved one) leaving those donors potentially vulnerable to nonperformance. ADP also incorporates again, for the first time in the transplant setting the use of formal contracts regarding those performances, by including a contractual agreement in the form of consents to donate and receive a transplant. In another setting, the use of formal contracts would hardly be notable, given the temporal separation of obligations. However, the transplant community has historically viewed formal contracts in the transplant setting with hostility, and that traditional hostility remains evident in current ADP practice. (2) This article demonstrates that the use of formal ADP contracts is likely inadvertent, and that these contracts are inadequate to tackle the complex, nonsimultaneous exchange of kidneys in which patients donate before their intended recipients have been matched with potential donors. As currently structured, therefore, ADP poses risks to both transplant centers and registries, as market makers, and to donors, as counterparties who have made an initial investment in anticipation of future performance. At the big picture level, then, ADP is a useful case study offering insights on both market and contract development. It provides an unusual window into the evolution of the exchange of a single good a kidney for transplantation from gift, to simple barter, to exchange with a temporal separation of obligations that relies solely on trust and reputational constraints for enforcement, to a complex matching market in which the parties rely, at least in part, on formal contract to define and clarify their obligations to each other. At the small picture level, this article argues that ADP is a positive development, providing greater flexibility and the possibility of better matches for individual patients. Further, ADP could, if it reaches the full potential envisioned by many transplant professionals, increase the number of living kidney donors at a time of great shortage. (3) In order to achieve that, however, ADP, as a system built on a foundation of trust and selflessness, cannot sustain too many instances of miscommunication and false hope.