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Follow Up: It’s Surprisingly Hard To Suppress Markets, Kidneys Edition…

July 26th, 2009 · 5 Comments
Follow Ups · Incentives · Markets · Policy

More on the topic that doesn’t want to die…(see below for post thread)

From Freakonomics:

“Note that the case even involved some trafficking in human organs:

Another man in Brooklyn, Levy-Izhak Rosenbaum, was accused of enticing vulnerable people to give up a kidney for $10,000 and then selling the organ for $160,000. Mr. Dwek pretended to be soliciting a kidney on behalf of someone and Mr. Rosenbaum said that he had been in business of buying organs for years, according to the complaint.

Remember this story the next time someone brings up the need for a legitimate, regulated market for human organs, as we’ve discussed here many times in the past. Many people’s objection to such a market is that poor people would suffer because a) they won’t be able to afford to buy organs; and b) they may be coerced into selling them. But with the current black market, poor people are already being excluded from getting organs (because there’s a scarcity of donated organs) and being lured into selling them — although in this case, it appears that a middleman got to pocket $150,000 while the “donors” got only $10,000.”

I usually use the following example of how hard it is to suppress markets: A lot of schools won’t sell candy to students, presumably since they worry that kids will spend their lunch money on candy rather than on real food. This creates an opportunity for an entrepreneurially-minded student (or students) to profit by buying candy elsewhere (or conning his parents into doing so) and then surreptitiously selling it at a higher price to his classmates. The classmates probably even have a higher willingness-to-pay than if the candy were readily available, since there is some cachet associated with having something that is hard to get. As such, it is a bit foolish for the school to think that their rule will bring candy consumption to zero, though it probably will decrease consumption somewhat. The downside is that the school has lost control over the candy market, whereas otherwise it could have at least tried to choose items that are less bad for students, such as chocolate-covered raisins as opposed to Laffy Taffy. (Confession: I am eating strawberry Laffy Taffy as I write this. It’s a big weakness for me.) It’s also shifting profit away from itself and toward the students that are willing to break the rules, which is unfortunate since, last time I checked, schools could use the cash.

Maybe I’ll switch over to using the more morbid kidney example, since the important part is that the principle is largely the same in both cases: It’s naive to think that a blunt policy in the form of “Market X is not allowed” is going to be a perfect solution to anything. It may be the best solution available, but it’s important to be thoughtful and realistic about potential outcomes.

That said, the “if you can’t beat them, join them” attitude expressed in the quote is not necessarily the right answer either. The reason is that, while it may make sense in the short-term of for an isolated market, it can create bad long-term incentives. Do we really want to have a society where the mentailty is “well, if we break a law enough the government will take the regulation away?” That could spin out of control pretty quickly…

The same logic can be used to justify the existence of unenforceable laws. (See here for a post about a more or less unenforceable subway law.) Even if the government can’t actually curb all of the behavior, it’s at least sending a signal that it’s not condoning the behavior, which could be successful (to a degree) in limiting the behavior. Otherwise, people would feel like their taunts of “nyah, nyah, you can’t catch me” have an actual effect on policy, and we don’t really need the governmental equivalent of playground torment.

Post Thread:
Reader Question: How Much For A Kidney?
Follow Up: Add Kidneys To The Apples And Livers…
Everyone Responds To Incentives, Apples and Livers Edition…

Tags: Follow Ups · Incentives · Markets · Policy

5 responses so far ↓

  • 1 Scott Ritchie // Jul 26, 2009 at 9:37 pm

    There was an NPR This American Life story about one of these Orthodox Jewish New York kidney donors a few months back (episode 347).

    I wonder if she was being scammed by this guy.

  • 2 Bob Nease // Jul 26, 2009 at 10:16 pm

    The Atlantic sports a pretty blunt (and articulate) point of view on this market:

  • 3 Lawrence M // Jul 26, 2009 at 11:42 pm

    I agree with your overall point that we don’t want to condone organ trafficking but going with your candy example, even if the school continued selling candy, it doesn’t monopolize the market as enterprising students will still be able to offer services such as candy in the classroom b/c some classmates can’t wait to go to the vending machine during lunch. So, as you say, this is unenforceable…of course, this is more enforceable with a more vigilant teacher than with a govt in the organ case.

    On a less related note, your candy example breaks down b/c even though the school loses revenue, they can’t sell candy b/c that in itself would condone the bad behaviour of eating candy.

  • 4 Scott Ritchie // Jul 27, 2009 at 12:08 am

    I think it’s far more important that schools teach students about basic economics than actually try and reduce candy consumption. Perhaps they should alternate between selling and not selling candy every month.

  • 5 econgirl // Jul 30, 2009 at 2:09 am

    In case you’re curious, here’s the candy in schools article that I was thinking about when I wrote this:

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