Friday, February 20, 2009

US Human Organ Policy

On the first day of class in Principles of Micro, I mention that the goal of the class is to show how economics can be used to improve the human condition. Here is one of the best examples where incorporating economic principles can truly improve the human condition: US policy in the procurement of human organs for transplant. For the last 30 years the number of patients in need (demanding) a kidney, heart, liver or lung transplant has been greater than the supply of kidney, heart, liver or lung organ donations. This has lead to a significant shortage of human organs, and unlike most cases where true shortages exist (such as for concert tickets), people die if the shortage persists. Why is there a shortage? Because the United States has created a law that forbids the sale of cadaveric human organs, effectively setting the price of human organs equal to zero.

Health officials have engaged in a number of policies - which have failed - to significantly increase the number of cadaveric human organ donations. A recent meeting of the Kidney Transplantation Committee of the United Network for Organ Sharing discussed new rules for allocating kidneys, but did not include a straightforward solution to this shortage. The straightforward solution is to allow the market for cadaveric human organs to open up, and let the forces of supply and demand to start allocating human organs more efficiently. You might be thinking - yeah, but won't the prices be really high? Beard, Jackson & Kaserman don't think so (.pdf). They argue that there appears to be a large amount of excess capacity at current collection rates and that the opportunity cost of cadaveric human organs is rather low, resulting in a high price elasticity of supply, which both suggest that prices will be relatively low.

While the opportunity cost to supply cadaveric human organs might be low, the opportunity ocst of maintaining the prohibition of a well functioning cadaveric human organ market is very high by making the price effectively zero. In fact the same authors estimate that about 1300 people per year die under the current system. To the authors of the study linked above and to myself, this is just unacceptable.

(Hat tip to Phil Miller for the St. Louis KTC meeting at Market Power)

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