A market for human organs? (Econ homework)

The text  raises the possibility of creating a market for organs for transplant. If this were enacted, what, if anything, do you expect to happen to the supply, demand, price, and quantity in this market? What would happen to total surplus in the market? Is this a good idea? Explain.

The idea of a commercial market for organ transplantation appears fraught with problems on multiple levels, both practical and ethical.

First a distinction must be made between organs that can be harvested from a living donor (kidneys and liver lobes) and those that can only be harvested from a deceased donor (heart, lungs, eyes, pancreas, etc.). This distinction suggests two very different types of markets. Organs that can be taken from living donors would suggest a market resembling something like the standard purchase of a product, while a market for organs that can only be harvested from a cadaver would presumably more closely resemble a futures market. I will first discuss the concept of a market for living donors and then more on to the latter market.

Analyzed at the level of very basic economic principles, the demand for organs certainly outstrips supply. With prohibition, the price ceiling for organs is set at $0; this situation inevitably leads to pressure for the emergence of a black market. From this point of view, the creation of a “legitimate”market would likely lead to an increase in supply.

Price discovery is a stickier subject. There is great difficulty analyzing anything relating to a change in price because the “market price” in legal terms is currently $0. So the price of an emergent market would certainly rise from $0. However, I believe the question here is meant to explore what would happen to prices relative to some assumed average price on the black market. One can attempt to glean a current price from these very disparate transactions, however the tremendous variety of conditions under which such transactions occur makes this difficult. Various data suggest that black market kidney transplant prices (for recipients) range from $15,000 to over $150,000. Does one take the midpoint of such a price range? The margin of error in trying to extrapolate such a price borders on pointless. Such an exercise is like asking what the price of an hour of labor is. Both organ and labor prices would surely be well correlated with the level of poverty in a country. In this sense, Bangladesh would hold a “comparative advantage” over the United States in the production of removed organs. Whether a nation would enjoy exploiting such an “advantage” is very much up for debate.

A brief overview of existing legal and black markets suggests, at best, a mixed picture of the benefits or costs of such a market. In the US, monetary compensation for organ donation has been banned since 1984. The timing of this legislation seems to indicate a reaction to poor outcomes in the formerly legal transplant market in India. (India also outlawed commercial organ transplant markets in the same year.) Prohibition of such markets exists currently in all countries with the exception of Iran. Iran has a legal organ market, though it has strict regulations on the export of organs, in essence exercising a system of “capital controls” to prevent some problems associated with other nations’ experiences.. Little hard data was available in a cursory search, but anecdotal evidence indicates the country still has a black market and other problematic issues in common with the worldwide community of countries with prohibition.

Here is a summary of the actual and future potential problems associated with a market for organs from live donors:

1)     Agency problems. Doctors and miscellaneous brokers are most often the connection between donors and recipients in the black markets currently (as well as during the legal market period in India). These agents are strongly incentivized to look after the interests of the recipient only. Poor health results for the (seemingly) exclusively poor post-op donor population are a common thread in every analysis of such markets. Ranging from the danger of death during the surgery, through near and medium term recovery to long term partial or total incapacitation/inability to work etc., all evidence suggests that donors suffer greatly from lack of concern over their post-operative health outcomes. While proponents argue that such problems would largely be cured by a legal market, evidence from Iran and the formerly legal market in India indicates otherwise. This type of intermediary relationship also poses informational problems for sellers and buyers. Evidence from both the black markets and the legal market period in India is rife with examples of “suppliers” selling for perhaps 10% of what a buyer is paying. All of this surplus is captured by a middleman and such a low supplier surplus guarantees that only the most desperate sellers are attracted to such an proposition, as indifference or outright refusal would prevail among anyone not mired in poverty, drug addiction or other such circumstances.

2)     Assuming that such a market was regulated and functioned, per normal economic prescriptions, to put downward pressure on prices, even this ostensibly “desirable” result would likely lower supplier surplus to the point where, again, only the poor who have few alternatives to “earn” a relatively large amount of money would be tempted into such transactions. In this sense, greater economic inequality would be the primary market factor driving the selection of these distressed sellers. This type of situation is a big factor for those with ethical objections to the legalization of such a market.

3)     Finally, once the door is open to markets for any organ that can be reasonably removed from a healthy person, where does one draw the line, if at all? If you only need one kidney, you could reasonably argue that perhaps you only need one functioning eye or one hand as well. Body parts, while removable, are not readily replaceable or substitutable and the obvious hardships and dangers posed by financially motivated surgeries thoroughly blur the line laid out by the Hypocratic Oath and any other ethical considerations that doctors and the medical profession at large are guided by. The new mantra would be “Do no harm, unless a willing buyer and seller enter into a legally binding contract.” Is this the kind of medical profession we want to foster?

More briefly, the market for organs only harvestable from a cadaver also poses problems, though perhaps to a lesser degree. Questions here though include whether the deceased’s family can sell on the organs of their family member; what sort of due process might be required to establish that the deceased would not have wanted it otherwise; eventually even whether the wishes of a deceased person are contractually enforceable. Would a party which contracted for the organs of a person once dead, be also purchasing some sort of enforceable claim of authority on aspects of the future donor’s dietary and behavioral habits? Could you begin to regulate the diet of someone whose heart you have a forward contract on? Questions such as these are just the tip of the icerberg. Furthermore, the very obvious problem of incentivizing parties to realize great benefit from the death of a person on whose organs they hold a claim (which would likely be a lifesaving development) could make the incentives for foul play under normal life insurance schemes look quaint by comparison.

Instead of a monetized, commercial market, here are a few alternative scenarios to address shortages and frictions in the provision of needed organ donations. For organs which can be donated from a living donor, organ exchange programs, a fairly recent development, are seeing increasing successes, particularly when various legislative restrictions to such arrangements are being addressed to allow for them to flourish. In this scheme, persons in need of an organ who have a family member or friend willing to donate, but with barriers (blood type, etc.) to direct donation, can go to an exchange and seek another party (or perhaps parties) to facilitate a series of one to one exchanges which leave all parties to the transaction with needed organs. Organizations such as the New England Donor Bank and the Our Lady of Lourdes Paired Exchange Program in New Jersey are leading the way with this non-monetary approach to creating an “altruistic market” (to coin a phrase) for increasing organ donation.

For the harvesting of organs from the deceased, there is much promise in the implementation of an “opt-out” system of presumed consent rather than the current “opt-in” system which prevails in the US. Evidence shows great disparities between the rates of those who profess to support organ donation and the rate of potential donors who sign the proper forms, etc. to actually do so. This approach is in place in a New Zealand, Spain, France, Austria and numerous other European countries and echoes proposals to address inadequate retirement savings through opt-out employer-based savings programs to align professed goals with realized goals. This approach is in place in a New Zealand, Spain, France, Austria and numerous other European countries. Studies find that rates of donation from suitable donors increased between 15% and 60% over a variety of countries and in some countries the consent rate (lack of opting out) was in the 99% range. There isn’t a lot of room to achieve more efficiency than that.

In closing, the need among societies for life-saving organs is an extremely complex issue, which touches on many very strong moral and ethical concerns. To myself and many others, provision of such incredibly scarce resources is best treated as a public good, as the high cost for buyers in money and for sellers in risk to near and long term health and, indeed, life, suggest that the monetization of such a market would only serve to reinforce deep and growing inequalities both within national boundaries and between nations.

Sources:

Organ-transplant black market thrives in India (February 09, 2008|By Anuj Chopra, Chronicle Foreign Service)

http://articles.sfgate.com/2008-02-09/news/17141227_1_kidneys-transplants-medical-tourism/2

No such thing as ethical organ market (July 11, 2008| By Alastair V. Campbell)

http://www.asiaone.com/Health/News/Story/A1Story20080710-75872.html

Kidney transplantation, Paired Donor Exchange (Columbia Surgery website)

http://www.columbiasurgery.org/pat/kidneypancreastx/donor_exchange.html

Bulletin of the World Health Organization|The state of the international organ trade: a provisional picture based on integration of available information (December 2007|Yosuke Shimazono)

http://www.who.int/bulletin/volumes/85/12/06-039370/en/

Organ donation: an opt-out policy? (USA Today, June 30, 2010|Cara Matthews)

http://www.usatoday.com/news/health/2010-06-29-organ-donors_N.htm

“A systematic review of presumed consent systems for deceased organ donation” (NIHR Health Technology Assessment, May 2009|Rithalia A, McDaid C, Suekarran S, Norman G, Myers L, Sowden A)

http://www.hta.ac.uk/fullmono/mon1326.pdf

 

 

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About theunlikelyeconomist

theunlikelyeconomist is in the midst of the long slog to attain a PhD in economics.
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