On Markets for Body Organs

by Don Boudreaux on October 22, 2004

in Prices

Marginal Revolution’s Alex Tabarrok is superb on the issue of markets for transplantable body organs. See his post here, and an earlier article of his here.

One point that typically remains implicit, but which, I believe, should be made explicit is that prohibitions on payments to the donors of organs artificially increase the marginal value of transplantable organs. That is, prohibiting organ donors from personally profiting keeps the quantity supplied of such organs lower than it would be in a free market. With the quantity supplied of such organs kept artificially low, the marginal value of organs is kept artificially high.

If you know supply-and-demand analysis, you can clearly see this effect by drawing an S&D graph and setting the price-ceiling at a price of $0 (with the supply curve intersecting the quantity axis at some positive quantity). Compare the marginal value corresponding to the quantity supplied at a zero price to the marginal value of the quantity supplied at the market-clearing price.

If you don’t know supply-and-demand analysis, no problem. Simply ask yourself: what’s the effect on the market value of something if the amount supplied of that something is reduced? Your common sense tells you that the more scarce something becomes, the more valuable it becomes – and the more valuable something becomes, the greater is the interest and incentive of people to struggle to get it. If people can’t increase their chances of acquiring something by openly offering the current owner a higher price, people will attempt to increase their chances of acquiring this something by competing for it in other ways – such as by queuing or bribery.

Because prohibitions on payments to organ donors make the quantity supplied of such organs artificially small – and, hence, make the value of such organs artificially high – the full price that people actually pay (including payments in the form of queuing, bribery, and buying privileged access) to maximize their chances of acquiring one of these artificially scarce organs increases – increases to a value greater than would prevail in a free market.

Price controls and prohibitions can mask the value of things; they cannot make these values disappear by fiat. In practice, the effect of price ceilings is always to raise the value of the thing whose price is kept artificially low.

I discuss this issue here in the context of the market for adoptable children.

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