Supply and Demand Applied to Body Organs

by Don Boudreaux on May 31, 2008

in Prices

In this post I argue that liberalizing the market for transplantable body organs — that is, allowing adults to sell their body organs at unregulated prices — will save lives.  In particular, I argue that

If organ sales were liberalized, the availability of organs would rise and their prices would fall.  Transplant surgery would become more affordable and, thus, more lives – not only of the rich but of all classes – would be improved and saved.

An angry bear, commenting on this post, disagrees; he writes:

The organ is now donated and cost nothing, zero.

Consequently it does not contribute to the expense of the surgery.

But you argue that paying for something that is now free will lower the cost of the surgery.

Care to explain how this works?

And they let you teach economics to the children of Virginia.

I offered this response in the comments:

This claim is mistaken. Because the prohibition on organ sales keeps the quantity supplied of organs lower than it would otherwise be, it artificially limits the supply of transplant surgery, thus driving up the price of transplant surgery.

More organs means higher supply of transplant surgery and, thus, a lower price of transplant surgery.

Think of it this way: suppose a regulation were enforced that prohibited people from selling shoelaces. Such laces could be given away, but never sold. Would the price of shoes with-shoelaces rise or fall?  The naive answer is fall – because an essential input to shoes-with-shoelaces is formally priced at zero.

But the correct answer is that the price of shoes with-shoelaces would rise, because the supply of shoes with-shoelaces would fall.  Therefore, by ending the regulation prohibiting the sale of shoelaces, the price of shoes-with-shoelaces would fall (because of the resulting increase in the supply of shoes-with-shoelaces).

One can look at the issue even more straightforwardly, but from a slightly different perspective, by asking: what would happen to the price of cars if automobile producers were prevented from selling their cars at prices higher than $0.  If you think that the price of cars would not rise, you fail.

In this post from October 22, 2004, I explain further:

On Markets for Body Organs

Don Boudreaux

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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