De Mel, S., Munshi, K., Reiche, S. and Sabourian, H.
Herding in Quality Assessment: An Application to Organ Transplantation
CWPE2052
Abstract: There are many economic environments in which an object is offered sequentially to prospective buyers. It is often observed that once the object for sale is turned down by one or more agents, those that follow do the same. One explanation that has been proposed for this phenomenon, which goes back to Banerjee (1992) and Bikhchandani et al. (1992) is that agents making choices further down the line rationally ignore their own assessment of the object's quality and herd behind their predecessors. We develop novel tests to detect information-based herding, based on heterogeneity in agent ability, together with a methodology to quantify its welfare consequences, that are applied to organ transplantation in the U.K. We find that herding is common and is an important contributor to the high rate at which organs are rejected by transplant centers (and subsequently discarded). However, herding does not raise discard rates much above the level that would be obtained if private assessments were made publicly available. Instead, the (limited) information contained in predecessors' decisions substantially reduces the acceptance of bad organs. This is because in our application (i) high ability centers are often willing to deviate from the herd and follow their own positive signals, and (ii) sequences are exogenously terminated relatively quickly.
Keywords: Social learning, Herd behavior, Information Cascades, Organ transplant decisions
JEL Codes: J12 J16 D31 I30
Author links: Hamid Sabourian
PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2052.pdf 
Open Access Link: https://doi.org/10.17863/CAM.61849
Keynes Fund Project(s):
Herding in Organ Transplant Decisions (JHOW)
