David R. Henderson  

Allowing A Positive Price for Kidneys Would Reduce Their Implicit Price

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Moreover, contrary to widely accepted conventional arguments on the subject, free-market sales of bodily organs can actually lower their effective prices. In this article, we focus on the market for transplantable kidneys, but only for purposes of illustration. The points we make here apply more broadly.
This is from this month's Econlib Feature Article, "How Free-Market Kidney Sales Can Save Lives--And Lower the Total Cost of Kidney Transplants," by Kathryn Shelton and Richard B. McKenzie.

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Milton Recht writes:

Illegality obviously does not stop markets from developing or we would not have drug dealers, prostitution, black markets, stolen goods markets, illegal DVDs, knock off goods, etc.

As the Shelton and McKenzie article note, there is at least one arrest for illegal kidney sales with the transplants taking place by unnamed prominent doctors at unnamed major hospitals.

The National Kidney Foundation notes there are over 100,000 people awaiting transplants and 18 die per day (6500 per year).

Either, an underground transplant market exists and we are unaware of it or the market does not exist in substantial numbers that make it visible. I think if it existed, we would hear about it.

Most economists, I think, would say that if there were demand for illegal goods and ability for a seller to make a profit, a market would develop, unless there were additional impediments other than illegality. Moral repugnancy alone, especially when it is not universally shared as with paying for organ transplants, will not stop market transactions. Is there repulsion because it is illegal or is it illegal because there is repulsion?

There are most likely other market impediments to organ sales for transplants.

At least three impediments come to mind. There is asymmetric information, uncertainty about the legal rights of the buyer and seller, and price/quality issues (price discrimination).

In an organ sale, there is a lot of asymmetric information. The provider of the organ knows a lot more about his/her health, family's medical history and previous habits, such as alcohol use, drug use, smoking, high fat diets, exercise, etc.

Additionally, the organ providers who are younger, healthy, ate healthy diets, exercised, refrained from drinking and smoking, and come from families with long life expectancy will want a market that allows them to capture a higher price for their better quality organs. The others with the less healthy organs will want a market that obscures or ignores the quality of their organs in order to obtain a price higher than under full disclosure.

Since it is not easy to return a transplanted organ, and standardization is impossible for organ sales (the organ quality will vary by individual), attaching product warranties to sales facilitates market transactions and alleviates many asymmetric information problems, but creates a new set of problems.

Should someone who gives up a kidney for cash, have to return the cash if the kidney is defective, disease-ridden, short-lived, fails in the recipient, etc?

Should organ sales be limited to only those providers who have healthier lifestyles, better genetics and who can provide a higher quality organ?

If informed sales of different quality organs occur, market prices will reflect quality (poor quality – lower price, higher quality – higher price) and have a range. Will society allow the sale of cheaper, poorer quality organs to poorer members of society who cannot afford to pay more for a better quality organ? Will society tolerate that some in poverty with unhealthy poverty related lifestyles will get less for their organs than those who are rich and can afford healthier lifestyles?

Who owns a child's organs? Can a parent ever sell a child's organ? Can a parent sell a child's organ to raise funds for expensive medical treatments to save the child's life? Or child's organ, but parent's or sibling's life?

If the market will price younger organs at a higher price, are we creating a new risk for children?

When the market can resolve the asymmetry information problems, sale transactions in organs will start to occur (probably underground and in a black market). When enforceable legal rights and warranties attach to the sales, a full-blown, visible and legal, organ market will develop.

It is more likely that market impediments, transaction costs, information asymmetry, and uncertain legal rights are limiting organ transplant sales more than its illegality.

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