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Reader Question: How Much For A Kidney?

July 15th, 2009 · 12 Comments
Econ 101 · Follow Ups · Markets · Reader Questions

I figured it was only a matter of time until someone got to this point, since you lovely people really seem enamored by the organ market conversation. From my Facebook page:

David Plumb: how much for one of your kidneys?

At first I wanted to give a flippant answer that this question was irrelevant since the existence of a market for kidneys did not imply that I would be forced to participate in said market. (Unless of course you believe the stories about waking up in a bathtub full of ice missing a kidney…though I would argue that is a separate market.) But once I thought a little it became an interesting question to me, and one that I am not sure I have a good answer for. My attempt: (I originally meant to reply on Facebook, but the character limit on comments was soon exceeded. So much for being concise.)

You know, for someone who studies money and things related to money, I am remarkably unmotivated by it. I suppose that’s why I am an academic economist and not an investment banker. I am generally happy if I can pay my mortgage and buy cute shoes and nice dinners.

As such, I am not sure as to the answer to your question. I am pretty sure that if someone I really cared about needed a kidney I would give one regardless of the price, but I am not sure that I would sell one at all for use by a random stranger regardless of the price. I have no idea whether I am representative in this way- if I am, then paying for organs is kind of a non-starter. Ideally, there would be some research conducted on what the supply curve for organs actually looks like, since that information would help to inform whether allowing a price mechanism would actually be worth it. (In other words, if it took too absurd an amount of money to move the needle on organ supply, then why bother with controversial legislation?)

This question can be illustrated with a couple of diagrams:

I drew both diagrams so that the current supply of kidneys (the level where price is zero) is the same. Demand for kidneys is also the same in both diagrams. The only difference between the two is how responsive the supply of kidneys is to price. Two important differences arise from this price sensitivity:

  • When kidney suppliers aren’t very sensitive to price (i.e. another dollar isn’t a very strong motivating factor – case 1), the price for kidneys ends up being higher than if kidney suppliers were more motivated by the almighty dollar (case 2).
  • When kidney suppliers aren’t very sensitive to price (case 1), the increase from the status quo in how many transplants are done is small compared to the case where suppliers are sensitive to price (case 2).

It’s pretty clear then that it’s important to know whether the market looks like case 1 or case 2. In case 1, you could end up paying $1 million each for an increase of 5 kidneys, in which case a smart policy maker might decide that having the healthcare system pay the market price for kidneys is not such a hot plan. If, on the other hand, a more modest sum could markedly increase the number of available transplants, then allowing a kidney market could be a socially promising strategy.

As if the situation wasn’t complicated enough, I would like to point out that the research on supplier behavior is not at all straightforward. People are generally very bad at answering hypothetical questions about willingness-to-pay and willingness-to-sell. (Notice above that even I admitted that I had no idea what dollar figure I would place on one of my kidneys.) Furthermore, people tend to be sensitive to the way questions are framed, so any survey design would have to be very well thought out. But before we throw up our hands and admit defeat, consider that if this research could at least provide a ballpark figure of what price and quantity is reasonable then it could be pretty valuable in making the case for (or against) a change in policy.

(Note: original posts on this topic are here and here.)

Tags: Econ 101 · Follow Ups · Markets · Reader Questions

12 responses so far ↓

  • 1 Scott Ritchie // Jul 15, 2009 at 5:26 am

    So how much money do I have to donate before you “care a lot about me” ?

  • 2 econgirl // Jul 15, 2009 at 5:52 am

    Wow, this topic really opened Pandora’s box now didn’t it…

    All I will say is that if people could buy my love/caring then I would probably have an awesome sugar daddy by now. 🙂

  • 3 Justin Ross // Jul 15, 2009 at 8:44 am

    A few years back, some economist(s) used global data and I believe estimated that the world market rate for kidneys would be $20,000-$40,000, for what it is worth. It seems like I read about this in a Levitt NYT article, but I am just lazy enough to not bother looking for it.

    Also, FWIW I have surveyed students in my econ classes on this several times, and the class median is usually $80K-$100K. Those surveys can be found starting in the Fall of 2006 at
    http://jross08.googlepages.com/surveys

  • 4 Tony // Jul 15, 2009 at 9:47 am

    Nice graphs. It’s useful to see how the supply elasticity matters.

    But, I wonder… doesn’t it matter how responsive to price the kidney demanders are?

    Take the extreme cases:

    1) If demand is perfectly inelastic, the price will adjust all the way to the current quantity demanded, i.e., 80,000 more kidneys would be provided. And, the price would be steep (just like the deand curve).

    2) If demand is perfectly elastic, the price won’t adjust at all (i.e., it will be zero), but the quantity will return to what’s currently supplied.

    Given the availability of substitutes, demand elasticity is probably somewhere between the two extremes.

    Regardless, responsiveness of consumers matters a lot for the prices and quantities we’d ultimately see — probably just as much as supply.

  • 5 slovenly // Jul 15, 2009 at 10:50 am

    It’d be interesting to look into the QALY( quality adjusted life year) value of a kidney transplant to the recipient. That data should be readily extractable for some heath economist with some time. Not to imply that the QALY value would be the asking price for someone with a good kidney to give, but as this metric is used to establish drug pricing it may be a start in establishing the pricing spread.

  • 6 pavel // Jul 15, 2009 at 12:32 pm

    I would draw the demand and supply graphs for kidneys the following way. The supply (because economists supply on demand j) would start at the y-intercept of about $20K (based on Justin’s numbers) and be somewhat elastic. However, the demand curve would be much more inelastic compared to supply because the donors only need one kidney to live, while the patients need no more than two.

  • 7 Justin Ross // Jul 15, 2009 at 2:30 pm

    If there is a perfectly inelastic good, it seems like it would be kidneys (perhaps chemotherapy also). If they make it cheaper, I probably don’t want more. If they make it more expensive, I probably don’t want any less.

  • 8 econgirl // Jul 15, 2009 at 3:06 pm

    @ Justin: I looked a bit also but then decided I too was lazy.

    @ Tony: I was only trying to compare the two scenarios rather than state absolute effects on price and quantity, in which case all that matters is that demand is the same in both scenarios. The analysis is also a little unusual in that we are comparing a shortage to a potential equilibrium rather than comparing two equilibria. (In other words, we aren’t just moving along the curves since we weren’t on the curves in the first place.)

    @ Pavel: The supply curve starts on the x-axis since there is a current supply of donor kidneys at a price of zero.

    @ Pavel/Justin: You’d think that demand would be perfectly inelastic, but since demand is technically “ready, willing and able to purchase”, this (sadly) is likely not the case. If you imagine, for example, a situation where dialysis and whatnot is covered by insurance but transplant payment is not (or there is a maximum reimbursement for such a thing), you would see a downward-sloping demand curve. Even if you have the healthcare system paying for the kidneys, it might choose to only demand kidneys on behalf the most needy patients if the price was very high.

    Now I know what the first case study for my class next week is going to be. 🙂

  • 9 Brian // Jul 15, 2009 at 7:02 pm

    Wrote a paper about this for my law and econ class.

    I used the normative coase theorem to justify that organs should be traded with the full and willing consent of the government regardless of equity.

    While the current altruistic supply puts the supply curve at a, for the most part, set quantity, only a part of the demand of human organs is fulfilled. This is not, of course, taking into considerations such as alternatives like using pig’s hearts or other such substitutes.

    It basically argued that the deadweight loss via the current system is justification to allow people to trade organs, or perhaps set up a future’s market. If not, it is at least time for a debate.

    Normative Coase Theorem, activate Marijuana legalization!
    (come on Cali, you know you want in on that.)

  • 10 suman // Jul 15, 2009 at 10:29 pm

    1. What happens to your supply curve if scientists will be able to make plastics kidney? Whether supply curve shifts right or rotates? I think it must rotate. However, text books explains it shifts. Confused.

  • 11 david // Jul 16, 2009 at 12:28 pm

    the text book says it’ll shift, because usually when a substitute enters the market, firms some firms will leave x to produce y. However, this case seems it would be different b/c organs aren’t produced in the way that plastic kidney is produced – and the number of ‘suppliers’ would probably stay relatively constant. If not, it may be that the altruistic givers will stop b/c they know a viable substitute exists

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