Truthful Mechanisms for Medical Surplus Product Allocation

Problem definition : We analyze a resource allocation problem faced by medical surplus recovery organizations (MSROs) that recover medical surplus products to fulfill the needs of underserved healthcare facilities in developing countries. The objective of this study is to identify implementable strategies to support recipient selection decisions to improve MSROs’ value provision capability. Academic/practical relevance : MSRO supply chains face several challenges that differ from those in traditional for-profit settings, and there is a lack of both academic and practical understanding of how to better match supply with demand in this setting where recipient needs are typically private information. Methodology : We propose a mechanism design approach to determine which recipient to serve at each shipping opportunity based on recipients’ reported preference rankings of different products. Results : We find that when MSRO inventory information is shared with recipients, the only truthful mechanism is random selection among recipients, which defeats the purpose of eliciting information. Subsequently, we show that (1) eliminating inventory information provision enlarges the set of truthful mechanisms, thereby increasing the total value provision; and (2) further withholding information regarding other recipients leads to an additional increase in total value provision. Finally, we show that under a class of implementable mechanisms, eliciting recipient valuations has no value added beyond eliciting preference rankings. Managerial implications : (1) MSROs with large recipient bases and low inventory levels can significantly improve their value provision by appropriately determining the recipients to serve through a simple scoring mechanism; (2) to truthfully elicit recipient needs information to support the recipient selection decisions, MSROs should withhold inventory and recipient-base information; and (3) under a set of easy-to-implement scoring mechanisms, it is sufficient for MSROs to elicit recipients’ preference ranking information. Our findings have already led to a change in the practice of an award-winning MSRO.