Friday, January 29, 2010

Shortages Can Always Be Solved by Market Prices

American Enterprise Institute scholar Sally Satel’s article “Kidney Mitzvah: Israel’s Remarkable New Steps to Solve Its Organ Shortage” appeared this week in Slate. Here's a summary:
Israel is taking bold measures to address its severe organ shortage. With the introduction of two new laws, Israeli families that allow their deceased loved one’s organs to be donated can receive money for a funeral or other memorial, and anyone who agrees to be a posthumous donor gets priority in the event of needing an organ transplant himself. Other countries should follow Israel’s lead and implement initiatives that provide incentives for organ donation.
Other countries like...... maybe the United States? We face a huge organ shortage that continues to worsen every year under current policy, which makes it illegal to provide any financial compensation for organ donors.

The charts above clearly illustrate the worsening situation for those on the growing waiting list for kidneys in the United States. The top chart shows that at the end of 2009, there were more than 83,000 patients on the waiting list, setting a new record for the total number of candidates waiting for kidneys in any year. Also, the kidney waiting list increased by almost 5,000 in 2009, setting another record for the largest annual increase in history for the kidney waiting list.

Kidney transplant operations for 2009 are currently available only through October from the
United Network for Organ Sharing, but the projections based on year-to-date counts suggest that about 16,940 kidney transplant operations will take place in 2009. As the graph above shows, the annual number of transplant operations has remained relatively flat at between 16,000 to 17,000 since 2004, while the waiting list has grown by almost 23,000 in the last five years. What that means of course is that the chances for those on the growing waiting list to actually receive a kidney keep fading every year, and more and more people die waiting.

The bottom chart displays the ratio of the number of candidates on the kidney waiting list in a given year to the number of actual kidney transplant operations in that year, and shows the worsening situation for those waiting for a transplant. As recently as 1997, there were three candidates waiting for each kidney transplant operation, but that ratio has almost doubled, to six candidates waiting in 2009 (based on data through October) for every transplant operation. Stated differently, the chances of getting a kidney while on the waiting list have fallen almost in half over the last 12 years, from about a 33 percent chance in 1997 to only a 17 percent chance in 2009.

The historical trends clearly demonstrate that current U.S. policies are failing miserably to address the growing kidney shortage, and the situation is getting worse every year. Maybe we can learn something from Israel’s new policies that provide incentives, including “compensation-for-memorialization,” to increase organ donation in the United States.

Or how about just allowing direct cash payments? Economics 101 tells us that shortages are always caused by artificially low prices (zero in the case of organs), and can always be eliminated by market pricing ($36,000 is the price that has been proposed in Singapore).

Here's what we know for sure: Relying on altruism for organs and a price of $0 results in a huge shortage, with demand exceeding supply by a factor of almost 6:1. At some price, let's say $1 million, there would probably be a huge kidney surplus, with supply exceeding demand. At some market-determined, market-clearing price somewhere between $0 and $1 million per kidney, there would be no surpluses, no shortages, and market equilibrium (Qd = Qs). And that would be the best possible outcome, since it would eliminate the waiting list, and in the process eliminate the needless deaths that now occur at the rate of about 12 per day for kidney candidates.

12 Comments:

At 1/29/2010 5:16 PM, Blogger Adam Freund said...

I couldn't agree more.

 
At 1/29/2010 5:45 PM, Anonymous Lyle said...

You think the backlash against abortion by the right was harsh wait till you see it for this. The Pope will get the bishops fired up and go with this. There is a much simpler way to do a good bit as suggested by Nudge. Make donating organs on death an opt out item, not an opt in. In other words you would have to sign a statement on the back of the drivers license saying you do not want to be an organ donor. Then most who die will be donors. Much simpler no issues of morality arising and almost no increase in health care costs. (Who do you think would pay the charge for the organ, health insurance and medicare)

 
At 1/29/2010 6:28 PM, Anonymous Soalta said...

The advantages of a market based system would be, without question, better than what we've got. Judging from the only existing comparable market - surrogate pregnancies - these deals would not be without significant legal problems related to adverse selection, perverse incentives, privacy, morality, and exploitation.

Let's have at it, sooner rather than later, but if the free market gurus think this won't present serious problems, they aren't thinking.

I haven't donated blood in years because I think it's a raw deal. Shylock offered better terms. Blood collectors make a lot of money yet pay little to nothing for what they get. But much of the supply is unusable and discarded.

 
At 1/29/2010 7:52 PM, Blogger Dave said...

As the death toll from the organ shortage mounts, public opinion will eventually support an organ market in the United States. Changes in public policy will then follow.

In the mean time, there is an already-legal way to put a big dent in the organ shortage -- allocate donated organs first to people who have agreed to donate their own organs when they die. UNOS, which manages the national organ allocation system, has the power to make this simple policy change. No legislative action is required.

Americans who want to donate their organs to other registered organ donors don't have to wait for UNOS to act. They can join LifeSharers, a non-profit network of organ donors who agree to offer their organs first to other organ donors when they die. Membership is free at www.lifesharers.org or by calling 1-888-ORGAN88. There is no age limit, parents can enroll their minor children, and no one is excluded due to any pre-existing medical condition.

Giving organs first to organ donors will convince more people to register as organ donors. It will also make the organ allocation system fairer. Non-donors should go to the back of the waiting list as long as there is a shortage of organs.

 
At 1/30/2010 9:44 AM, Anonymous publius322 said...

this was a great post and I endorse it wholeheartedly. Please do another post on how a compensation system would deal with the main argument that statists use: that the poor would be exploited under such a system.

 
At 1/30/2010 10:18 AM, Blogger Mark J. Perry said...

Publius322: Good question. Here are some quick thoughts:

We already have many laws that are supposed to protect the poor and/or disadvantaged from being exploited, e.g. minimum wage laws, usury laws that limit interest charges, anti-gouging laws that impose price controls following natural disasters, etc.

So if the main concern was the potential for exploitation of the poor, wouldn't the statists support a "minimum kidney compensation law" that established a minimum payment for a kidney, e.g. $25,000?

 
At 1/30/2010 10:46 AM, Blogger sethstorm said...

The only thing that it would do is throw informed consent out the window. Cash seems to have a way of overriding it.

That, and it also would encourage harvesting of bodies whether there was consent or not. Never mind the means for obtaining said non-consent.

In other words, consent to keep your organs intact would become dependent on your ability to buy the freedom of not being harvested.


publius322 said...

The problem with that is that you make things worse. At this point, not-so-prosperous/disadvantaged individuals (that lead clean lives) become spare parts.

Their argument is quite solid in that respect. The only thing that will break it is with cloning. With that being very far off, I don't see the argument being broken.


Mark J. Perry said...
So if the main concern was the potential for exploitation of the poor, wouldn't the statists support a "minimum kidney compensation law" that established a minimum payment for a kidney, e.g. $25,000?


It isn't so much the final compensation. The problem is with the idea that you cannot(easily) grow another fully compatible kidney in the place of a lost one.

That's the reason why I have no problem with blood but I draw the line at transplanted vital organs.

 
At 1/30/2010 12:52 PM, Anonymous geoih said...

Quote from sethstorm: "That, and it also would encourage harvesting of bodies whether there was consent or not."

There are already proposals for this (i.e., everybody is a donor, unless specifically declared to be a non-donor).

Perhaps we should simply declare all organ transplant work a mandatory charity, including doctors and hospitals. If you're a doctor or hospital transplanting an organ, you get paid the same amount as the organ donor, in the present case that would be zero.

 
At 1/30/2010 10:26 PM, Blogger sethstorm said...


There are already proposals for this (i.e., everybody is a donor, unless specifically declared to be a non-donor).

Perhaps we should simply declare all organ transplant work a mandatory charity, including doctors and hospitals. If you're a doctor or hospital transplanting an organ, you get paid the same amount as the organ donor, in the present case that would be zero.

Then you would have doctors complaining about the entire practice. Or is this something you presupposed from the start?

When you give the go-ahead to give monetary value to an organ, there will be people willing to consider the disadvantaged as bags of self-maintaining organs ready for sale. Incentives work to throw informed consent out the window.

How about this poison pill?
The sale of transplant(non-cloned) organs is permitted only if:

The broker is willing to be financially responsible for all healthcare after the transplant from that point forward; they cannot influence any decisions of the covered party. Not nice, but it's what it's supposed to be - a discouragement from the practice.

 
At 1/30/2010 11:10 PM, Anonymous Lyle said...

Of course in the opt out scenario you are dead if you donate, so you don't really care much one way or the other. The only downside is a religious one on how a body is disposed of, but if you feel strongly you can opt out. Its not clear what the downside is, and since the donors are already dead the donor in particular has very little downside.

 
At 1/31/2010 9:01 PM, Anonymous matt b said...

Why don't families of those who needlessly die on waiting lists mobilise against this? The political impact would be enormous, I think - hard to tell anyone having just lost their loved one they are wrong to complain. I don't understand why people in favour of such payments paired with angry families of those who died could not produce a highly effective campaign for a change.

 
At 6/03/2010 8:51 PM, Anonymous Anonymous said...

I don't agree with the ban, I feel it only creates underground channels. People will do what is most important to them...if proper channels aren't available they will be made in some form or another.
You cant stop necessity. There are also monetary forms of compensation that don't break any laws, you just have to be smarter than Uncle Sam. I'm a healthy, athletic 35 yr old white male willing to give for compensation. I exercise, don't drink or smoke and have no family history of any illness or disease. I'm type O-. I live in Denver. 05/03/2010
scojennn@gmail. com

 

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