Time to Allow a Market for Kidneys

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Anyone who has ventured out onto the roadways probably noticed there isn’t much traffic. Which was expected. We also expected that gasoline prices would fall, many closed businesses will not reopen, and the economy would slide into a deep recession. What was not predicted – although in retrospect we should have called this – is fewer human organs available for transplant. Which raises a question economists have been asking for decades. Is it time to allow a market for kidneys?

This news was conveyed by KQED reporter April Dembosky in a radio broadcast.[1] Kaiser Health News published the transcript. Ms. Dembosky reports that

Deaths from accidents are the biggest source of organs for transplant, accounting for 33% of donations, according to the United Network for Organ Sharing, UNOS, which manages the nation’s organ transplant system.

But since the coronavirus forced Californians indoors, accidents have declined. Traffic collisions and fatalities in the state dropped by half in the first three weeks of sheltering in place, according to a study by the University of California-Davis. Drowning deaths dropped 80% in California, according to data compiled by the nonprofit Stop Drowning Now.

In April organ procurement organizations typically see a surge in donations related to outdoor, spring break-related activities and travel, but not this year.

From March 8 to April 11, the number of organ donors who died in traffic collisions was down 23% nationwide compared with the same period last year, while donors who died in all other types of accidents were down 21%, according to data from UNOS.

Few things are as personal as your own body. Yet most countries prohibit you from selling parts of this essential personal property. The most common example is kidneys. Most of us have two. We only need one. Some people would probably be happy to sell one of their kidneys.

Iran’s “Market” for Kidneys

Popular myth says Iran has a market for kidneys.[2] This is patently untrue. In 2017 Los Angeles Times reporters Shashank Bengali and Ramin Mostaghim looked into this. Iran does indeed allow individuals to sell a kidney. But the government sets the price. In 2017 that price was equivalent to $4,600.[3] The recipient pays the donor this amount. The government pays the full cost of the transplant surgery and the follow-up rehabilitation.

In Iran there is a black market for kidneys. The wealthy can buy a replacement and not wait for a year. People, often in desperate straits, post handwritten notes offering a kidney for sale. Including blood type is a must. Basic economics says that if no transactions ever took place in the black market, there would be far fewer of these signs. Which implies $4600 is a price ceiling with a higher equilibrium price.

Kidneys for Sale Time to allow a market for kidneys

Kidneys for Sale

Russ Roberts hosted Tina Rosenberg on his EconTalk podcast In 2015 to discuss markets for kidneys.[4] Naturally, part of their conversation was about Iran. According to Ms. Rosenberg, in Iran the donor and recipient must be the same nationality. This reduces medical tourism. Interestingly, the original program, put into place shortly after the Iranian revolution of 1980, allowed a recipient and potential donor to negotiate a higher price. Apparently that is outlawed today.

But many doctors oppose selling kidneys. The following quote is a good illustration of why we don’t let doctors advise us about economics.

“The price is going to go higher and higher,” said Behrooz Broumand, a nephrologist and secretary of international affairs for the Iranian Society of Organ Transplantation. “Transplant commercialism is a race. As long as there is poverty, they cannot stop it.”

Any good economist will tell them that demand for kidneys is likely to be pretty price inelastic. That means the equilibrium price is largely determined by supply. Based on the number of signs on Iran’s streets, supply may well be more elastic than we might think.

Back to the U,S.

Naturally, Russ Roberts and Tina Rosenberg also talked about the U.S. Here are a few interesting tidbits. Dialysis costs $80,000 a year. Medicare covered the full cost of dialysis regardless of the patient’s age. There were (and are) about 100,000 people waiting for a transplant. In 2017 the average waiting time was 3-1/2 years. Twelve people waiting for a kidney die every day. I’ll save you some brainpower and note that amounts to 4,380 per year. Ms. Rosenberg made the telling point that deceased donors can give two kidneys. Death is a more efficient source of kidneys. (There are, of course, downsides to death that probably more than offset this efficiency gain.)

Death is a more efficient source of kidneys.

We need a value for human life. Luckily, over at Forbes, Chris Conover published a very nice review article in March.[5] I’ll spare you the gruesome actuarial details (except for the cool chart below which I will not explain). For those in the 45 to 54 age cohort, the “value of a statistical life” is (drumroll) $1.8 million. The economic loss is about $7.9 billion per year.

Values of human life time to allow a market for kidneys

(click for larger image)

Costs and Benefits

The benefit of saving one life in the 45-54 age group is about $1.8 million. What about the cost of the transplant? Luckily, CostHelperHealth.com has some estimates. The transplant surgery and consultations will cost between $150,000 and $260,000. Annual cost for antirejection drugs is $17,000. I’ll use a discount rate of 3%, the rate used by Chris Conover and other researchers. Assume our test subject is 50 years old when they get their transplant and lives to age 80. Pulling out my trusty copy of Excel™ the present value of all that is $583,207.50. Benefits are about three times cost. There is room for a market here.

Conclusion

Kidneys available for transplant are a scarce good. Economists believe that price rationing of scarce goods usually produces an efficient outcome. Clearly the annual dollar loss from deaths of those awaiting transplant exceeds the cost of performing a transplant. If there was ever a time to at least begin using market forces for kidney transplants, it’s now.

  1. April Dembosky (May 19, 2020). KQED radio. “Fewer Traffic Collisions During Shutdown Means Longer Waits For Organ Donations.” Voice version available at https://www.kqed.org/news/11814928/fewer-traffic-collisions-mean-longer-waits-for-organ-donations . Transcribed by Kaiser Health News at https://khn.org/news/fewer-traffic-collisions-during-shutdown-means-longer-waits-for-organ-donations/ , Both accessed May 19, 2020.
  2. Much of the material that follows is from Shashank Bengali and Ramin Mostaghim (Oct. 15, 2017). Los Angeles Times. “‘Kidney for sale’: Iran has a legal market for the organs, but the system doesn’t always work.” Available at https://www.latimes.com/world/middleeast/la-fg-iran-kidney-20171015-story.html . Accessed May 19, 2020.
  3. One way of thinking of the U.S. market is that the government also sets the price at $0.00.
  4. Tina Rosenberg and Russ Roberts (Sep. 19, 2015). EconTalk.org. “Tina Rosenberg on the Kidney Market in Iran.” Available at https://www.econtalk.org/tina-rosenberg-on-the-kidney-market-in-iran/ . Accessed May 19, 2020.
  5. Chris Conover (Mar 27, 2020). Forbes. “How Economists Calculate The Costs And Benefits Of COVID-19 Lockdowns.” Available at https://www.forbes.com/sites/theapothecary/2020/03/27/how-economists-calculate-the-costs-and-benefits-of-covid-19-lockdowns/#5187ad166f63 . Accessed May 19, 2020.

 

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.