Organ markets and the problem of real options

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The fanfare surrounding organ markets within the economics community is often extreme. For many it is the last frontier of market fundamentalism, with some even promoting a futures market in organs.

For others however, organ markets are so obviously ethically and morally questionable that these ‘non-economic’ concerns override their otherwise vigorous support for market solutions.

One purely practical consideration is whether markets for organs will fulfil their promise of increasing supply at all, especially from living donors. Will the ‘intrinsic’ motive of one’s moral commitment be crowded-out by the ‘extrinsic’ incentive of financial compensation?

The crowding-out hypothesis is supported by evidence of reduced blood donations in areas that pay for blood compared to those that don’t. In a classic study on conflicting motivations between financial incentives and social incentives, the introduction of a fine for late pick-ups at a selection of Israeli day-care centres actually increased the number of late pickups. The social motive to do the right thing by the centre was replaced with a financial relationship, where the fine became a fee for longer day care.

Medical professionals are much more cautious in their approach to organ markets. This survey of 739 individuals from the transplant-related medical community found that while 70% support indirect compensation for organ donation, 66% opposed direct compensation, while 84% approved of the role of next-of-kin in this decision. Other studies have found that 85% of families of donors reject any payment at all. Clearly there is more to the story that financial incentives.

I offer here a more standard economic reason why most estimates of increased organ supply from establishing a market for organs, especially by live donors, are massively overestimated. Typically organs are treated as commodities in the abstract sense used by neoclassical models of demand and supply. But in reality, organ donation is a once off irreversible and costly event for each individual, and therefore has the characteristics of a real options problem.

Potential donors have a real option to delay donation for a better price in the future. Yep, the same constraint that determines the rate of housing development occurs in this situation, where donors face decision of when to exercise their one-shot option to donate.

If the price of organs is rising rapidly, it will pay for potential donors to withhold their organs till a future time. Perhaps ultimately till their death, at which time they may exercise their option and bequeath the earnings to their heirs. Or they may not, since there is no financial motivation any longer (apart from bequeath motives, which are actually similar to the ‘intrinsic’ motives discussed earlier).

How such financial dynamics will effect the market for organs (including from live donors) is a concern for policy makers seeking stable reliable supply. There is clearly scope for organ price bubbles to occur, which will compromise the medical intentions of the policy in the first place.

Attempted legal markets for organs are generally compromised by unscrupulous behaviour and high levels of donations by the poorest in society, meaning potential organ donation success typically comes with associated social costs.

Non-market organ donation policies have proven to have great benefits. Setting the national default to opt-in to organ donation, rather than opt-out, seems to generate significant (usually 20-30%) increases in donations, although raising its own moral and ethical dilemmas.

My personal view is that the default option appears worthwhile and should be on the table for public discussion. But the moral controversy surrounding organ donation seems to suggest that developments in lab-grown organs will be a more attractive, potentially medically and morally. This a complex area of social policy and I am no expert. Simply offer yet another argument to quell the enthusiasm of the market zealots, and point interested readers to the variety of challenges, both moral and practical, in this area of policy.

Comments

  1. I’d never support the concept of the government having the first right to your body and your organs.

    There haven’t been genuine attempts at a market approach to this issue.

  2. There’s also the option of exchanges – I think they’re called paired exchanges or donor chains. Basically, the idea is that most people probably can find someone to donate a kidney for them; the issue is that donor may not be compatible for the patient. So, the donor agrees to donate a kidney to someone else, in return for their designated patient getting an organ. You can have a direct swap, or a large circle, or even a chain – the last person in the chain (whose donor donates an organ, but they don’t get an organ) gets priority for any future exchanges/organs that get donated from people who die. I think there’s something in New England along these lines.

    • Alvin Roth won a Nobel prize for economics, in part for his work on matching kidney donors, which led to the establishment of the New England kidney exchange program.

  3. We can’t do justice to this topic with economic analysis alone, it’s more complex than crude supply and demand. Blood is the human tissue in highest demand for medical use – despite also being the most frequently donated, there’s always concern that demand will outstrip supply, so it’s a fair model for many of the medical and ethical issues raised in attempting to secure supply of donor tissue.
    Behavioural screening of volunteer donors ensures Australia’s blood supply is among the safest in the world. While all donor units are tested for a range of blood-borne infectious diseases (including HIV, hepatitis C and syphilis), some time elapses between the establishment of infection and a point at which a serological detection limit is reached. So we don’t rely on serological detection alone, we actively select people who are lower-risk in the first place.
    In countries where paid donation is legal and commonplace, they may still use behavioural screening… but a financial incentive for a potential donor to lie about their risk factors exists. In addition, these paid programs tend to attract donors who are poor, transient and more likely to have risk factors like injecting drug use.