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The Economics of Organ Transplanta4on Julio J. Elias Universidad del CEMA, Argen4na June 28, 2013 2013 ECONOMICS RESEARCH EXPERIENCE FOR UNDERGRADUATES Outline of the Presenta4on • • • • • • The Organ (Kidney) Shortage Causes of the Organ Shortage Social Cost of the Current System Poten4al Solu4ons The role of Altruism in the Supply of Kidney for Transplanta4on Why efficient solu4ons are not implemented This presenta4on is based mainly on a preliminary version of a paper with Gary Becker and Karen Ye (2012), Becker and Elias (2007) and Elias (2008). Persistent excess demand for kidney transplants 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Total Number of Persons on the Waiting List Deceased Donors Total Number of Transplants Living Transplants Demand for Kidney Trasplants Source: United Network for Organ Sharing (UNOS) Loss of life while wai4ng 12,000 5.0 4.5 10,000 4.0 3.5 8,000 3.0 6,000 2.5 2.0 4,000 1.5 1.0 2,000 0.5 0 0.0 Deaths on the Waiting List GAP Source: UNOS and own calcula4ons. Average Time on the WL (in years, Second. Axis) Main Cause of the Shortage Total Cost of Kidney Transplants ($) Altruis4c Supply of Kidney Transplants $160.000 Annual Gap Demand for Kidney Transplants QS Q0 Annual Quan4ty of Kidney Transplants The Cost of the Present System with No Selling of Organs • Each year 4,000 individuals on the Wai4ng List die while wai4ng for a transplant. • We es4mate they forfeit about 15 years of life because they did not get a transplant. At $120,000 a life year, this is worth about $1.8 million to each of the 4,000 who die. Aber subtrac4ng cost of transplant surgery and adding cost of dialysis, this gives an annual cost of over $7 billion for those who die wai4ng for transplants. What to do about it? • Many discussions of reforms of the present system: – Mild • Beder alloca4on • Donor awareness campaigns and public educa4on • Changing the default rule for cadaveric organ dona4on • Priority rules (don’t give don’t take). Donors clubs (Lifesharers) • Hidden and in kind compensa4on • Relax the Criteria for the Marginal Donor • Kidney Paired Dona4on – More Radical • Market solu4on. Pay for organs Changing the default rule for cadaveric organ dona4on • An important policy proposal to boost cadaveric organ dona4ons is to shib the default rule for cadaveric organ dona4ons. In the United States, as in Great Britain, Germany and other countries, cadaveric organs are procured under the informed consent (opt in) principle. However, in most European countries cadaveric organ procurement is carried out under the presumed consent (opt out) principle, so that organs from cadavers can be harvested unless individuals prior to death expressly indicated that they did not want their organs harvested. Kidney Paired Dona4on Source: WSJ online. Roth, Alvin E., Tayfun Sonmez, and M. Utku Unver, “Kidney Exchange,” Quarterly Journal of Economics, 119, 2, May, 2004, 457-‐488. Kidney Paired Dona4on When there are many incompa4ble pairs (recipient-‐live donor), the ques4on becomes: What is the best way to assign (exchange) them? Source: WSJ online. Kidney Paired Dona4on Source: WSJ online. Roth, Alvin E., Tayfun Sonmez, and M. Utku Unver, “Kidney Exchange,” Quarterly Journal of Economics, 119, 2, May, 2004, 457-‐488. Kidney Paired Dona4on Source: WSJ online. Roth, Alvin E., Tayfun Sonmez, and M. Utku Unver, “Kidney Exchange,” Quarterly Journal of Economics, 119, 2, May, 2004, 457-‐488. Market Solu4on • Becker and Elias, 2007 – Monetary incen4ves could increase the supply of organs sufficiently to eliminate the large queues. – These incen4ves would not raises cost of transplants by a large percent, and would eliminate waits, raise life quality, and greatly cuts deaths. Components of the Price of an Organ Value of Life Monetary Compensa4on for the Risk of Death Risk of Death * Value of Life + Quality of Life + Forgone Earnings Monetary Compensa4on for the Risk of Reducing Quality of Life Monetary Compensa4on for Time Lost during Recovery Risk of Reducing QL * Value of the Reduc4on in QL Time to Recover * Value of Time Value of Life Component of the Price Risk of Death Value of Life Total Kidney 1/1000 $5,000,000 $5,000 Liver 1/300 $5,000,000 $16,700 Price of Kidneys and Livers Value of Life Quality of Life Kidney $5,000 $7,500 Liver $16,700 $15,000 Forgone Earnings Total Forgone Earnings Component of the Price Kidney Liver Weeks for Recovery Value of Time Total 4 weeks $675 per week $2,700 8 – 9 weeks $675 per week $6,000 Price of Kidneys and Livers Value of Life Quality of Life Forgone Earnings Total Kidney $5,000 $7,500 $2,700 $15,200 Liver $16,700 $15,000 $6,000 $37,600 Sale of Organs Total Cost of Kidney Transplants ($) Altruis4c Supply of Kidney Transplants The equilibrium price would be set by live dona4ons, which are the marginal dona4ons. Market Supply of Kidney Transplants $175.000 $160.000 Annual Gap Demand for Kidney Transplants QS Qcadavers Live Q* Q0 Annual Quan4ty of Kidney Transplants Equilibrium Price of the Cost of Kidneys • The equilibrium price would be set by live dona4ons, which are the marginal dona4ons. Rough es4mates in our earlier paper indicate that the supply of live dona4ons would be quite elas4c at a price of about $15,000 per kidney. That es4mate clearly has a sizable error—perhaps the price is as high as $25,000 or as low as $5,000. In each case, it does not affect the fundamentals of the analysis. The role of Altruism in the Supply of Kidney for Transplanta4on 8000 7000 6000 5000 4000 3000 2000 1000 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Related Total Exchanges Total Unrelated Total Most dona4ons are by related individuals, but both giving by unrelated individuals and through kidney exchanges have grown a lot since 2005. Why efficient solu4ons are not adopted? • Even though the benefits of elimina4ng the organ shortage are significant, many people have opposed proposals to pay for organs on moral and other grounds. • In reference to the economic analysis of the market for kidney transplants, Paul Bloom, a psychologist of Yale said: “the problem is not that economists are unreasonable people, it’s that they’re evil people. They work in a different moral universe.” • On the ban on organ sale, economist Alvin Roth says: “Legalizing kidney sales faces substan4al, perhaps insuperable obstacles. Just as you can’t sell yourself into indentured servitude anymore, some transac4ons are illegal because enough people find them repugnant.” Repugnant Transac4ons • When certain type of transac4ons involves money they can be perceived as: • Inappropriate • Unfair • Unworthy • Unprofessional Alvin E. Roth, 2007. "Repugnance as a Constraint on Markets," Journal of Economic Perspec4ves, American Economic Associa4on, vol. 21(3), pages 37-‐58, Summer. “We didn’t have Pme to pick up a boRle of wine, but this is what we would have spent.” (New Yorker cartoon.) Why efficient solu4ons are not adopted? • The concept of Repugnance, developed by Alvin Roth (2007), suggests that some transac4ons, such as the buy and sale of kidneys for transplanta4on or to sell horsemeat for human consump4on in California, are illegal simply because a sufficient number of people find it repugnant. • In a repugnant transac4on the par4cipants are willing to transact, but third par4es disapprove and wish to prevent the transac4on. Why efficient solu4ons are not adopted? • However, it can be shown that what is repugnant depends on the circumstances and, moreover, it is closely associated with the social economic costs generated by the ban, or regula4on. • There are many cases in history in which bans or transac4ons restric4ons were removed because of the large social costs of maintaining them. • Someone might say Americans found drinking alcohol repugnant, so there was a prohibi4on. – 15 years later people changed their mind because the costs of prohibi4on seemed so high. • If the price of beef and other meats rose a lot, the repugnance toward horse meat would go down, and might even disappear. Conclusions • Organ transplant markets are a disaster • Large “shortages” of kidneys and other organs for transplanta4on • Neither kidney exchanges nor opt out systems have solved the problem of shortages • Best solu4on is to allow the purchase and sale of organs • A market in organs would eliminate organ shortages and thereby eliminate thousands of needless deaths because of organ shortages Conclusions • There may be a taste factor that makes one repelled by the sale of organs, but that has to be balanced against the benefits from sale. • Someone who is repugnant toward selling organs will change his mind if his wife or child suddenly needed one, and she would suffer a lot or even die because of the wait required under a system. • Conclusions about the morality of using prices to encourage supply or ra4on demand have changed in the past when they were shown to be effec4ve. • One example is a carbon tax to cut pollu4on; another is the use of willingness to pay to reduce the risk of death to measure the (sta4s4cal) value of life. References – – – – – – – – – – – – – – – Abadie, Alberto and Sebas4en Gay, 2006. "The impact of presumed consent legisla4on on cadaveric organ dona4on: A cross-‐country study," Journal of Health Economics, Elsevier, vol. 25(4), pages 599-‐620, July. Becker, Gary S. and Julio J. Elias. “Introducing Incen4ves in the Market for Live and Cadaveric Organ Dona4ons,” Journal of Economic Perspec4ves, Summer 2007. Cronin, David and Julio J. Elias. “Opera4onal organiza4on of a system for compensated living organ providers,” When Altruism Isn’t Enough: Using Incen4ves to Reduce the Na4onal Kidney Shortage, ed. Sally Satel, AEI, 2009. da Silva, Everton Nunes, Ana Katarina Campelo and Giacomo Balbinodo Neto, 2007. "The Impact Of Presumed Consent Law On Organ Dona4on: An Empirical Analysis From Quan4le Regression For Longitudinal Data," Proceedings of the 35th Brazilian Economics Mee4ng. 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