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Maybe it Is Not a Kidney Problem After All

I ask my intro economics students to write a response paper to the question, “Should we allow a market in transplant kidneys?”

UPDATE (as I post this, my wife calls me and tells me Grey’s Anatomy has an episode all about it! Coincidence? Clairvoyance? Something else?)

As part of the exercise I hope that they are able to compare the benefits and costs of both the current system (kidney sales are illegal) and a proposed market system (freely buying and selling kidneys). I don’t want to rehash what I think about the issue (but see here for a hashing), rather I want to emphasize two important points I want to get across from such an exercise.

1. Many people have a moral objection to allowing the sale and purchase of body parts. I have no problem with that. But what an exercise like this does is force students to make explicit what the costs of their beliefs are. For example, if 60,000 people remain on the kidney donation waiting list each year, and each of these expects to die within 5 years, then holding the moral view of making kidney sales illegal is coming at a cost of pain and suffering and the ultimate death of AT LEAST this many people. Furthermore, we know that a recent eBay auction of a kidney was stopped at \$5.7 million. That is an indication of what the marginal value of that first legally sold kidney would be, given the current situation. Clearly all 60,000 waiting listers would not be willing to pay this much, and estimates seem to settle around an expected market equilibrium price of \$15,000 per kidney, but using that information together, and assuming a linear demand curve and a linear supply curve (with 10,000 donations currently happening at zero price) you might estimate the total economic cost of not permitting kidney sales to be in the range of \$200 BILLION (I also assume in this calculation that once the cost of a kidney is low enough, demand is effectively inelastic and also a linear supply response from zero to the market clearing price … but see my next point for more on this). This seems extremely large, but if you recall that the median estimate from value of statistical life studies is around \$5 million, and 60,000 people die each year from the kidney shortage, that gives a total of \$300 billion in the gross value of these lives. So even if I am off by a factor of 10 on the deaths per year, it seems like at least \$20 billion to \$30 billion of value is being left on the table (again, I am ignoring the humanity of all of this for the time being).
2. The second lesson that might be learned is that it is probably not a useful assumption anywhere in economics to make that a demand curve is perfectly inelastic. This is true for two reasons, one at “each end” of the demand curve. At the “high value” end, clearly the value of a kidney cannot be infinity — at best it can be the total wealth of the world’s richest man, but even then we might reasonably argue that this overstates the marginal value of the first kidney, even to him. At some point, there are better alternatives to buying a kidney for \$50 billion. At the low end is where things become more interesting. Many students ask me, how can there be an increasing quantity demanded for kidneys when the price of a kidney falls. In the long-run this is entirely plausible, and for the same reason why seatbelts do not necessarily save lives. When it becomes easy and affordable to get a kidney, in the long run, people’s behavior might change in such as way that it is akin to demanding a kidney at low prices. Think about it, you can get kidney disease from eating lots of sugar and fatty foods. Right now, I might limit my intake of these because I am really scared about the long term effects of diabetes. But if curing kidney disease becomes as simple as curing a headache, you might take fewer actions to prevent kidney disease from forming … thus a downward sloping demand curve. The same thinking is usefully applied to many other goods and sevices that people tell you are “priceless.”
3. Finally, the most important insight here is that I am duping the audience into thinking that the real problem is that there are people that need kidneys and that government policies are preventing it from happening. Thinking like an economist will help the reader to understand that this is not the essence of the problem. WHY do people need a kidney? Because they are unable to clean their own blood – this is the major function of a kidney. So the real problem is that the only way for someone, right now, to have their blood cleaned when they have a disease of the kidney is to regularly undergo dialysis – i.e. get hooked up to a machine that cleans your blood (it is not fun). Once you think about this for a moment, you might have a legitimate argument for continuing the current policy of banning a market in kidneys (I am still not persuaded, in fact, I thought up this example in an attempt to convince myself that the market is actually not useful, and I am not convinced). By allowing a kidney market, what you have, in effect, done is to provide strong incentives for ONE particular type of solution to this blood-cleaning problem – and that is to remedy it by placing live, flesh and blood kidneys from donors into the patients. By doing this, perhaps I have reduced the incentives for someone else to come up with an even better way to have blood cleaned. Perhaps a safe, small, and cheap artificial kidney would be better? Perhaps a new drug could be developed to replace the function of a kidney? Not that we rely on replacement kidneys, perhaps these new technologies will never get developed. It is a persuasive argument, but can you think of two reasons why I think it falls short of a good justification for continuing with the current program?

4 Responses to “Maybe it Is Not a Kidney Problem After All”

1. Bobo says:

The AMA is already working towards providing financial incentives for people to become organ donors, and the current program inspires people to utilize organ trafficking which is likely the most unethical black market ritual out there.

2. Kevin Lin says:

In response to: “By doing this, perhaps I have reduced the incentives for someone else to come up with an even better way to have blood cleaned. Perhaps a safe, small, and cheap artificial kidney would be better? Perhaps a new drug could be developed to replace the function of a kidney? Not that we rely on replacement kidneys, perhaps these new technologies will never get developed.”

There is always an extremely high incentive to develop new technology, as any technology would become an immediate improvement over the transplant system and would effectively replace the market, shifting the demand from donor kidneys to artificial kidneys.

3. MAsj says:

I think this is why it falls short of justification for our current system.

The logic in the argument is like saying your losing your money because you went to a football game he or she payed tickets for because he or she missed out on other “possible” entertainment. The advocates of the policy are arguing that they don’t value 60,000 lives more than the increased incentive for an alternative blood-cleaning-system market. This is not true in that the if the kidney market opens up, there will be more incentives to build better alternatives.

Competition for kidney market will rise due to widened awareness. When kidney costs 15,000 and an operation costs 100,000 there will be an incentive to always come up with cheaper alternatives that are better than dialysis treatments and transplantations. Information will flow through the mass media and many will be sparked by the incentives. And in a drug and artificial organ market, a superior product will automatically monopolize the blood-cleaning-system market so there is extra personal incentive also. In reality, we are not missing out on alternatives when we open up the kidney market, we will be providing more competition between companies and individuals on the table.

4. Patrick says:

Well two out of three ain’t bad.