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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{ 22 comments }

Mauricio Flores May 31, 2008 at 5:27 pm

I think that there is no reason not to let anyone who wants, sell their organs. It could work for someone as some kind of death insurance, if something happened to me, i could let my family decide if they want to sell my organs after i die and get some kind of income from it. Also how could it not lower the costs of a surgery? private initiatives to transport organs would surely emerge, and people could use them to transport the organs to the highest bidder , and then lowering the costs to the hospital itself…

i don't know, it just seems so stupid to deny the economic freedom of people.

trumpetbob15 May 31, 2008 at 5:49 pm

There is another aspect of a greater supply of organs that most people don't notice. As a commenter on the prior post mentioned, organs aren't just plug into the body and away we go. Because of compatability issues with tissues and blood types, even if there is an organ available, it might not be compatible with the body and be rejected; in essence, to that patient, the reality is that no organ is available. However, if the supply of available organs were greatly increased, the chances of finding a match would increase as well through simple statistics. This reduces the cost of matching and better allows doctors and patients to have successful transplants.

Gil May 31, 2008 at 8:42 pm

O_o

GabbyD May 31, 2008 at 10:34 pm

a question on the applicability to developing countries, or places with many poor people.

Medically, this operation has a good chance of giving the donor medical problems down the line. Typically, the donor will receive less (the price) than the cost of dealing with the problems of organ donation, especially if the donor is poor/mis-informed/impatient. Should we allow these types of transactions?

Suppose you say we should let people freely transact, given proper medical advise, if this is a country with great demand for donations, won't this lead to illegal sidepayments (read: corruption), leading to more approvals of surgeries even if its unwarranted?

any advice on how to make this practical in developing countries is most appreciated

Nathan Bowers June 1, 2008 at 12:24 am

I am outraged (outraged!) that the "angry bear" commenter didn't prefix "children" with a collectivizing "our".

We might have to revoke his overbearing nanny statist card.

Adrian Peirson June 1, 2008 at 6:29 am

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http://www.theforbiddenknowledge.com/hardtruth/silentweaponsforquietwars.htm
Witnessed by Holywood Producer Arron Russo
http://www.youtube.com/watch?v=7nD7dbkkBIA&feature=related
Now watch the Movie
http://www.endgamethemovie.com
See How the Endgame is currently being played out at :-
http://www.prisonplanet.com

Chris June 1, 2008 at 9:53 am

Those believing that poor people in the world's shoe factories would be better off without their jobs are even more likely to believe those same people are better off by not being able to sell their organs.

Freedom_Lover June 1, 2008 at 11:27 am

This is all about the insidious oppression of right-wing Christianity.

richard June 1, 2008 at 3:26 pm

Don,

I think your commenter made a mistake in assuming that if the price is 0 US$ for an organ, then the total price is also 0 US$.

Because as you know much better than me, the supply will be limted and people will spend more time on the waiting list.

Not only the opportunity cost of waiting should be counted, but people also die waiting for a transplant.

And that is a rather high price to pay.

richard June 1, 2008 at 3:29 pm

Don,

There is another alternative: How about automatically enrolling people for transplant (everybody is by definition a donor) and you can 'opt-out' if you don't want to. But then you can't have a transplant yourself.

I think in Belgium they do this, but I don't know the results.

ben June 1, 2008 at 3:54 pm

"Think of it this way: suppose a regulation were enforced that prohibited people from selling shoelaces."

C'mon. Why use something silly like shoelaces when there is a real example? Here's one: the NY city taxi medallion system.

http://www.schallerconsult.com/taxi/taxi2.htm

ben June 1, 2008 at 4:05 pm

BTW, I've only skimmed that link which I really put in there for a little background. It's interesting that the reason for the medallion system is that there was too much congestion… Of course, congestion is related to scarce real estate for roads, and what roads are connecting people to are decided by what people build there, which is heavily regulated by zoning ordinances. *All* of this is managed by politics, rather than markets.

David P. Graf June 1, 2008 at 11:02 pm

I asked earlier in an post on Cafe Hayek if it would be ok for someone to sell their heart if the price was right. I never got an answer to that posting. Should I conclude that the answer to that question is "yes", but that no one wants to go on the record supporting that position?

Countjulian June 1, 2008 at 11:17 pm

I asked earlier in an post on Cafe Hayek if it would be ok for someone to sell their heart if the price was right. I never got an answer to that posting. Should I conclude that the answer to that question is "yes", but that no one wants to go on the record supporting that position?
———
As one who believes in the right of free men to euthanasia and suicide for any or no reason at all, I say "yes."

student June 2, 2008 at 1:16 am

What bothers me most about that commenter is his undeserved arrogance. It was nice of you to answer him so politely, after he insulted you by implying you're not worthy of being a professor. This was based on his assessment of "cost" that reveals that he probably didn't take econ 101. I hate that the blogosphere is filled with self-appointed experts who cast stones at every opportunity. I try to be as civil as possible, and try to recognize what I don't know, but it seems that every forum is filled with people who not only don't know about a topic, but (worst of all), think they know a lot more than the experts do, and express that sentiment with vitriol.

Brad Hutchings June 2, 2008 at 1:23 am

David, You are arguing the point from the current state of technology. Let's say you could "rent" your heart out for a few months and use an artificial device while a new one is grown for you from stem cells. Your existing heart is healthy and the best bet for a transplant for the recipient who needs one now. You are in great health and can deal with an artificial heart for a few months. Meanwhile, the boffins grow you a new one that will be ready in 6 months to a year. Unless you're related to the recipient, what else but the dirty green would entice you to loan your heart to someone who needs it?

Be as prudish as you like about it. This will happen legally somewhere in the world, and people who need the procedure and have money to offer will just make such a place a medical tourism destination. Or embrace the possibilities and make them accessible to everyone here.

student June 2, 2008 at 1:24 am

As an aside, there are some people suggesting that only people who are willing to donate be eligible recipients for transplants. There is a program called LifeSharers in which people can self-select to prioritize their organs to other members of Life-Sharers, whose members all prioritize their organs to other potential organ donors. You hold the card with you, and if you die (sorry for the morbid explanation), the card says that the program should be contacted first, and that waiting people on that list get first dibs on your organs. It is perfectly legal, because you are setting the priorities on your own organs.

Marcus June 2, 2008 at 7:54 am

Ever seen the price of blood? By the time it reaches the patient it is $250/pint. It seems everyone can profit on it but the donor.

scott clark June 2, 2008 at 10:14 am

I am now on the record for the selling of the heart (and every other body part) at any mutually agreed upon terms.

indiana jim June 2, 2008 at 10:30 am

Isn't an analysis of the supply curve (that is more reflective of what is happening) here to have it begin along the horizontal axis to represent those donations that are currently forthcoming at a zero price; then have it slope upward thereafter?

Gary June 2, 2008 at 1:36 pm

To Student:

Sometimes the donor can profit… I went to another of Virginia's fine State Universities. At a place near campus, you could donate blood plasma. The hooked you up to a machine for 30 minutes twice a week, and you walked out the door with $50 a week. Of course, you were tested for opiates weekly, so you have to stay away from the poppy seed bagels, but it was an otherwise good deal.

ben June 3, 2008 at 7:29 pm

David Graf

I asked earlier in an post on Cafe Hayek if it would be ok for someone to sell their heart if the price was right. I never got an answer to that posting.

Yes. Some including me, believe a person should have the right to do that. Permitting that behaviour follows from the idea that one's life is one's own. That is a principle some people believe in and accept.

Now you may find an outcome like that unpalatable, but it would be unusual (there is a black market for body parts and to my knowledge nobody is selling their hearts), and it would come bundled with the highly desirable outcome of fewer people dying while waiting for an organ (and not because live people sold their hearts, but because compensation raised supply among willing, rational and non-suicidal people).

It is not as if the status quo is free of ugliness. Seeing loved ones involuntarily die while needlessly waiting for organs is far from ideal.

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