Adam Smith and the Market for Kidneys for Transplantation

Walter Castro and Julio J. Elías for AdamSmithWorks

Could the kidney transplantation system benefit from an injection of Adam Smith's ideas? Authors Castro and Elias, drawing on research published with Gary Becker, share their analysis below. 
Organs for transplantation are extremely valuable, and their shortage has become one of the most burning public policy issues in most countries with developed transplant programs. In 2007, one of us (Julio Elías) published with Gary Becker a paper that uses the economic approach to analyze the consequences of legalizing the purchase and sale of kidneys for transplants. At that time, one of the big questions raised by this controversial proposal was what would be the price of a kidney in a legal market, something that at first glance seems invaluable, a million dollars? hundred dollars? One of the contributions of the paper was precisely to address this question using one of the great ideas of Adam Smith: The Theory of Equalizing Differences, exposed in Book I, Chapter X, of the Wealth of Nations.
In that chapter, Smith explains the Wages and Profit in the Different Employments of Labor and Stock. The chapter begins by pointing out that: 
The whole of the advantages and disadvantages of the different employments of labor and stock must, in the same neighborhood, be either perfectly equal or continually tending to equality. If in the same neighborhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. (WN, 1.x.1)
Following Smith's idea, the donation of an organ for transplantation offers advantages and disadvantages for which the market has to compensate to "tend to equality." How much compensation is required to induce a person to sell a kidney? We estimate the price of a kidney from a living donor by calculating how much additional income an individual will require to be indifferent between selling a kidney or not. Specifically, we assume that the reserve price of an organ has three main additive components: a monetary compensation for the risk of death, a monetary compensation for time lost during recovery, and a monetary compensation for the risk of reduced quality of life. Using information from the labor market to estimate each component, we obtain a price of $ 15,000 for a kidney. We show that the price of the kidney would not raise the total cost of transplants by more than 10% and would allow to increase the number of transplantations significantly. Furthermore, if the marginal donor is satisfied with helping the recipient, the price could be lower.
While the benefits of eliminating the shortage of organs and ending deaths on the waiting list are significant, many people oppose the proposal to pay for organs, a practice prohibited by law in almost every country, except for Iran. Critics have claimed that paying for organs would be ineffective, that payment would be immoral because it involves the sale of body parts and that the main donors would be the desperate poor, who could come to regret their decision.
One question that arises from these concerns is about people's decision making and how voluntary the exchange is. In particular, whether the sale of the kidney is mainly due to desperation to receive money to meet an immediate need and, therefore, if a regret on the donor side is likely to occur after the donation.
According to Adam Smith, in the Theory of Moral Sentiments, when making decisions, a conflict is unleashed in the human being between passions and the impartial spectator:
“The pleasure which we are to enjoy ten years hence, interests us so little in comparison with that which we may enjoy today, the passion which the first excites, is naturally so weak in comparison with that violent emotion which the second is apt to give occasion to, that the one could never be any balance to the other, unless it was supported by the sense of propriety…” 

“The spectator does not feel the solicitations of our present appetites. To him the pleasure which we are to enjoy a week hence, or a year hence, is just as interesting as that which we are to enjoy this moment.” (TMS, 4.ii.8)
Under the type of system we proposed with Becker, safeguards could be created against impulsive behavior. For example, to reduce the likelihood of rash donations, a period of three months or longer could be required before someone would be allowed to donate their kidneys or other organs. This would give donors a chance to re-evaluate their decisions, and they could change their minds at any time before the surgery. They could also receive guidance from counselors on the wisdom of these decisions.
However, we do not find any element that suggests that Adam Smith would have agreed with the imposition of limits on individual decision to make up for a possible lack of self-command, one of the four cardinal virtues. This virtue, according to Smith, develops during a person's life, “Hardships, dangers, injuries, misfortunes, are the only masters under whom we can learn the exercise of this virtue (self-command). But these are all masters to whom nobody willingly puts himself to school.” (TMS, 3.iii.36)
A legal safeguard to avoid impulsive behavior would operate as the imposition of a minimum price for kidneys, and perhaps its design is not the one that best ensures the well-being of donors. Taking into account the high cost for the individual to develop this virtue and that its absence can cause problems for the proper functioning of the market, under a free market system in the sale of kidneys it is likely that these safeguards and their design will arise spontaneously by transplant programs to ensure better service to both parties, the donor and the recipient, as is the case under the current system.

Related Links:

Maria Pia Paganelli, Devoured By Wild Beasts or Drowned Like Puppies? With Markets, Neither
Alexander Tabarrock, Life-Saving Incentives: Consequences, Costs, and Solutions to the Organ Shortage

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