In 2012, two seasoned scholars shared the Nobel Memorial Prize in Economic Sciences for their research on designing markets. Lloyd Shapley had developed theoretical methods to create stable matches in unstable markets. Alvin Roth had taken the theory to the real world, co-founding a kidney donation matching system for New England, correcting public school choice programs in New York and Boston, and tackling markets for new medical residents, economists, and lawyers.

That same year, Christine L. Exley and Elena Battles launched a startup called Wagaroo in another noble market design pursuit: finding homes for dogs and vice versa. The Wagaroo website describes the company as “a team of fun humans with years of dog experience and a desire to create a healthier, happier marketplace for matching dogs and people.”

“We can help them skip the shelter and directly rehome their dog into a new loving family”

As with the work that won the Nobel Prize, “with Wagaroo, we’re trying to solve some standard economic problems related to market design,” says Exley, who joined the Harvard Business School faculty in June, as an assistant professor in the Negotiation, Organizations & Markets unit.

One economic problem is search costs—the time, money, and effort spent on researching which dog to adopt. Another is information asymmetry—in which one person involved in an economic transaction has more information than the other.

“The individual or organization trying to find a home for a dog often has more information on that dog than you do as a potential buyer or pet guardian, and that can lead to adverse situations,” Exley says. “The information asymmetry and search costs were what really motivated Wagaroo.”

In his research on market design, Roth has said that a successful marketplace must be “thick,” meaning there are enough participants for the market to thrive. “Pet finding is definitely a thick market,” Exley says. “About 23 million people each year are looking for a new pet. The majority of those individuals are open to several options when it comes to where those pets are coming from. Yet, about 3 million dogs and cats are killed every year because they don’t get homes, so there’s clearly room for improvement in matching pets with families.”

THE BIRTH OF WAGAROO

Exley has been fervent about finding homes for dogs since she was 11-years-old, when she began volunteering at an animal shelter near her hometown. “I visited the shelter to earn a Girl Scout badge, but it immediately became a passion,” she says.

More than a decade later she was sitting in a behavioral economics class at Stanford University, studying the work of Roth and Shapley, when inspiration struck. “I recall—perhaps naively, but excitedly—thinking, I know how to save the dogs! We just need to come up with a better matching algorithm,” says Exley, who, while working on her doctorate in economics, spent her free time volunteering at the San Francisco SPCA.

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When Exley shared her idea with the San Francisco SPCA, she learned that somebody else had approached the organization with a similar thought. This was Elena Battles, a Stanford MBA graduate and the former COO of the Humane Society Silicon Valley. Exley and Battles were introduced, and within a year, they had launched Wagaroo.

The initial iteration of Wagaroo was based entirely on trying to develop an effective matching algorithm. Prospective owners filled out surveys, indicating preferences about factors such as size, breed, energy level, age, and kid-friendliness. Wagaroo then suggested matches and tracked if and how easily prospective owners found dogs for their families.

The algorithm seemed to make logical sense. But in real life, it didn’t work.

“We found that what people said they wanted and what they chose was uncorrelated,” Exley says. “Anecdotally, what we saw over and over was that people see a dog in person, they fall in love with it, and they get it. Maybe they thought they wanted a calm, six-year-old Labrador retriever, and said so on the survey. But then, when they saw a really cute two-month-old poodle, they just had to have him. And that’s the dog they ended up getting.”

The founders were a little disappointed, but not surprised to find that heartstrings had thwarted their algorithm. Exley knows from personal experience that impulse often wins the day when it comes to choosing a pet. As a teenager, she fell for “a wiggly-butt pit bull” at the shelter where she volunteered. One day she arrived to find that the pup’s kennel card had been turned sideways, a signal that often indicated which dogs were about to be killed if they did not find homes.

“I was 17,” Exley says. “Seventeen-year-olds weren’t allowed to adopt dogs. So I took her for a walk and didn’t come back.” (She hastens to add that her adult self does not advocate such extreme pet adoption measures, nor does Wagaroo!)

Like many startups, Wagaroo pivoted after reassessing market needs.

“We talked to a lot of people about where they got their dog,” Exley says. “And a story that kept coming up was that people often found their dog from another family. Not from a shelter, not from a rescue group, not from a pet store or a breeder. Just, you know, ‘A friend of mine had a co-worker who needed to rehome her dog.’”

The team realized a market need for a website that helped people find pets—while also helping those who needed to find new homes for their pets, due to a death in the family, for instance, or dire financial circumstances. And so they launched the Family2Family program.

“Instead of people having to give their dog to the shelter, we can help them skip the shelter and directly rehome their dog into a new loving family,” says Exley, noting that the program also helps families follow best practices about rehoming their dogs via financial and informational resources, periodic tip emails, and individualized consultations where appropriate.

THWARTING THE PUPPY MILLS

In addition to being thick, Roth has written that successful marketplaces must be safe, meaning that all parties feel secure enough to make decisions based on their best interest, rather than trying to game a flawed system.

For Exley and Battles, establishing safety meant preventing unethical breeders from posing as families needing to rehome their dogs. Wagaroo deals with that issue by not allowing owners in the Family2Family program to receive fees for their dogs. The logic: Puppy mills are in it for the money, which discourages them from posting on Wagaroo.

Some people don’t want pets to go to a family not willing to pay for it, and are hesitant to give their dogs away for free. Wagaroo agrees with this concern, Exley says, and thus encourages families to charge a different kind of rehoming fee that goes to Wagaroo, rather than to the previous owner. In return, Wagaroo uses the fee to help other dogs find homes and to support organizational operating costs.

NEXT STEPS

The Wagaroo team has expansion plans. For people who simply desire a high-touch process even though they are searching for a dog online, Wagaroo’s Get a Dog page is a great place to start, Exley says. But for people who specifically want to buy a dog from an ethical breeder, there’s a strategy afoot to help them avoid puppy mills. For shelters and rescue groups that struggle with making matches because of their often-changing inventories of dogs and interested families, Exley and Battles have begun designing an accessible, up-to-date list of families looking for dogs. And there are plans to update the site. (At the risk of making a bad dog pun, the site is pretty bare bones right now, in terms of high-tech features.)

But all that will require additional capital.

“Outside investment is a possibility,” Exley says. “However, maintaining autonomy is a priority. We know where we can add value, and we are committed to our mission. By moving forward as a for-profit, albeit mission-based business, we don’t have to compete for donations with animal shelters and other organizations that provide direct care to animals.”

For Exley, it is not all about the dogs. She’s primarily focused on her new career as an economics professor at HBS, where she’ll be teaching negotiation classes. None of her academic work in progress focuses on puppies. And on her personal homepage, the hyperlinked subject “economics” is listed above “dogs.” But “dogs” is still there.

“In some ways finding homes for dogs is a side path,” she says. “But it’s a very important side path that I’ve been pursuing since I was 11.”