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Everyone Responds To Incentives, Apples and Livers Edition…

June 29th, 2009 · 8 Comments
Behavioral Econ · Incentives · Markets

Here’s the deal, which you may have heard by now: Steve Jobs underwent a liver transplant back in April 2009. This just came out a few days ago, since the Methodist University hospital in Tennessee originally denied him being a patient there. (A blurb on the hopsital’s statement can be found here.) In honor of this, let’s give some background on organ transplants from an economic perspective.

Al Roth is a professor at Harvard Business School who studies what he labels as “repugnant transactions” and how they act as a contraint on markets. For example: Section 301 of the National Organ Transplant Act
(NOTA), 42 U.S.C. 274e 1984 states “it shall be unlawful for any person to knowingly acquire, receive or otherwise transfer any human organ for valuable consideration for use in human transplantation”. Put more succinctly, you’re not allowed to buy and sell organs. Why? Because it’s potentially unfair, crass, and generally icky seeming. We as a society in the U.S. seem to have decided that organs should go to who needs them the most, which is not necessarily the same as who has the highest willingness to pay. (People in California have also apparently decided that no one in their state should be allowed to eat horse meat, since the idea is so gross that it imposes a cost on non-horse-eating people because they have to think about the concept of eating a horse. Just wait until the anti gay marriage people start making a similar argument. *sigh*)

Anyway, I digress. Prof. Roth has an interesting PowerPoint presentation on the topic, as well as a paper. (The paper is more detailed/insightful, but the PowerPoint is an easier read. I leave it to you to choose your poison.)

I would argue that the need criterion works okay for organ markets where the supply is fixed, such at that for hearts. But what about other markets where organ donation is more voluntary, such as that for kidneys? (Or for livers, apparently, since in my reading today I learned that someone can donate half of their liver to another person. I’m guessing a main downside there is a severe constraint on one’s drinking ability.) In the case of voluntary organ donation, a non-zero price could increase the quantity supplied of organs and shorten the queues of people waiting for transplants.

So now that we understand the issue at hand regarding organ donation, let’s come back to the case of Mr. Jobs. Take a look at what CNN has to say:

“There are 127 centers in the U.S. that perform liver transplants. If you need an organ transplant, your doctor will refer you to one of these centers, where you will be evaluated, given a score based on the severity of illness, and placed on the center’s waiting list, if you are indeed a candidate for transplant.

The center’s waiting list feeds into a national database managed by the United Network for Organ Sharing (UNOS), a nonprofit organization that contracts with the federal government to manage the nation’s organ transplant system.

UNOS works with 58 organ procurement organizations (OPOs) that coordinate organ distribution in their region of the country. When an organ becomes available, the OPO in that region searches the UNOS database for a local match using blood type (and other biological considerations), the patient’s severity score, and the time spent on the waiting list. If a match can’t be made within that region, the organization expands its search to neighboring regions.

The problem — or the advantage for some patients — is that not all OPOs are created equal. Some regions contain nearly 15 times as many people as others, and their waiting list times vary widely. Patients in the smaller OPOs tend to be less sick and experience shorter wait times before getting an organ. In the Tennessee OPO where Jobs received his transplant, the median wait for a liver between 2002 and 2007 was just over four months. The national average was just over a year, and in some OPOs it was more than three years.

Though there is always the possibility of preferential treatment once a patient is on a waiting list — UNOS conducts periodic audits of transplant centers for exactly this reason — it is unlikely that someone like Steve Jobs can ‘cut the line’ of the transplant waiting list.

The reason that some people might be able to get transplants more quickly is that they’re standing in more lines. Nothing prevents someone from being evaluated and listed at multiple transplant centers. As long as a patient has the wherewithal to fly around the country — and be available at the drop of a hat if a liver becomes available (this is where the private jet comes in handy) — a patient can, in theory, be evaluated by all the transplant centers in the country.”

So Steve Jobs responds to incentives- the incentive in this case was a shorter wait time for a liver (and better facilities, as my reading seems to imply), and the action was to move to Tennessee. Commercial Appeal reports that “The transplant waiting list in Tennessee is shorter than in many other states, according to data from The United Network for Organ Sharing. In 2006, the median number of days a person waited once placed on a transplant list nationally was 306. In Tennessee, it was 48 days.” Given this, Steve Jobs bought a house there, either to camp out in while waiting for a liver or to live in while recovering, or both. (Sidenote: the best part of the CA article is the following: One blogger at cultofmac.com used an aviation scanner to log the movements of Jobs’ private jet and wrote “it looks like he flew to Memphis on March 23.” Seriously people, do you not have anything better to do than stalk Steve Jobs?)

After reading way too much about this issue, I conclude that people don’t seem to be entirely supportive of Steve Jobs “gaming the system”, despite the fact that he technically didn’t get any preferential treatment. But, as usual, let’s think more carefully about the situation. The objection seems to be that, by getting on the list in Tennessee, he is taking a spot away from someone else in Tennessee. Maybe this means that the person behind him in line had to wait 49 days rather than 48 days. While this is a potentially true statement, it considers only one side of the issue. The other side of the issue is that, by getting off the list in California (which, if nothing else, Jobs does by getting a new liver elsewhere) there is a person in California that perhaps gets his new liver in 305 days rather than 306 days.

As a (wannabe) academic economist, one of the things I have learned to do is try to anticipate others’ objections to the arguments that I present. In this case, my guess is that you might be thinking the following: “But wait a minute- maybe the difference between 48 versus 49 days is a bigger deal than the difference between 305 versus 306 days, since by 305 days you’re a lost cause anyway. Therefore, the cost imposed on the person in Tennessee is greater than the benefit to the person in California, so Steve Jobs is imposing a net cost on others by moving.” (Even if this isn’t objectively true, people tend to exhibit loss aversion and weight perceived losses more heavily than perceived gains. As a result, this sort of argument would not be surprising.)

This is certainly a possibility. But even if it is the case, let’s again turn the scenario on its head a little. Most people either can’t or don’t move (I am guessing more the former than the latter) in order to get an organ transplant faster. This is how the discrepancies in wait times persist…and is it really fair for the person in Tennessee to have a better chance of survival because he happened to be born in a state with a relatively high ratio of liver donors to receivers? (I love that one blog commenter pointed out the irony of a good usable liver supply in the home of Jack Daniels. Hee.) Wait, I can phrase the question a different, yet equivalent way- is it really fair for the person in California to have a worse chance of survival because he happened to be born in a state with a relatively low ratio of donors to receivers? (I’ll bet you never fully thought about how important the framing of a question is until now.) When put that way, the most fair outcome would be for the wait times to equalize across regions. Isn’t Steve Jobs doing his part to foster this equality? So please, think happy thoughts for old Steve and please, please, stop stalking his house, since that’s just creepy.

Tags: Behavioral Econ · Incentives · Markets

8 responses so far ↓

  • 1 Scott Ritchie // Jun 29, 2009 at 4:47 pm

    How could you make an entire blog post about organ donation without mentioning that we can increase the supply by over 10 times simply by changing the wording on the form at the DMV?

    Dan ariely explains this very well in his freely viewable TED talk (about 5 minutes in) here:
    http://www.ted.com/talks/lang/eng/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

    In short, tens of thousands of people are dying every year because of the wording on a DMV form.

  • 2 econgirl // Jun 29, 2009 at 5:26 pm

    Sorry about the broken link on the PowerPoint presentation. It should be fixed now.

  • 3 econgirl // Jun 29, 2009 at 5:27 pm

    @ Scott: I am working on not sticking too much in one post. Hence the new Follow Ups category, so stay tuned. 🙂

  • 4 Matt // Jun 29, 2009 at 10:17 pm

    You mention that Jobs is helping to even out the market by doing what he did. However, that would mean it is an incredible inefficient market if I may just say that. Only those with money would be in a position to even out the market. Since I am pretty sure those in need of transplants don’t generally fall under that category(someone find some data quick) the market would be pretty hopeless to leave on its own. Quick some call Obama and tell them we should be taxing people in order to fly transplant patients around and help the market. J/K

    On another note… it’d be interesting to hear the possible effects on insurance markets should we be able to buy organs.

    Oh,and one more thing, props for the article. I had a kidney transplant when I was 15 :-). If my professors had used this as an example, I would have done better in intermediate micro.

  • 5 Dave Undis // Jun 30, 2009 at 11:23 am

    Here’s another incentive that will increase organ donation rates — allocate donated organs first to registered organ donors.

    LifeSharers has implemented this incentive. If you donate your organs through LifeSharers, you’ll increase your chances of getting a transplant should you ever need one because you’ll get preferred access to the organs of other members. As LifeSharers’ membership expands, your chances of getting a transplant keep going up — if you’re a member.

    Check it out at http://www.lifesharers.org. It’s free. It could save your life.

  • 6 Court // Jun 30, 2009 at 12:40 pm

    Great article, love your posts! Keep up the good work, your stuff is very intriguing and well thought out.

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