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Alex Tabarrok Department of Economics George Mason University Tabarrok, Alex. 2010. The Meat Market., January 8, sec. The Saturday Essay.

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Presentation on theme: "Alex Tabarrok Department of Economics George Mason University Tabarrok, Alex. 2010. The Meat Market., January 8, sec. The Saturday Essay."— Presentation transcript:

1 Alex Tabarrok Department of Economics George Mason University Tabarrok, Alex The Meat Market., January 8, sec. The Saturday Essay. Tabarrok, Alexander The Organ Shortage: A Tragedy of the Commons. In Entrepreneurial Economics: Bright Ideas from the Dismal Science. Oxford: Oxford University Press. Alexander Tabarrok, "Life-Saving Incentives: Consequences, Costs and Solutions to the Organ Shortage." August 3, Library of Economics and Liberty. 6 December



4 Millions of people suffer from kidney disease and the numbers are increasing rapidly but in 2007 there were just 64,606 kidney-transplant operations in the entire world. Due to the shortage many countries are now experimenting with innovative incentive systems designed to increase the supply of organs.

5 The National Organ Transplant Act (NOTA) of 1984 states: In other words, incentives for organ donors are illegal. But incentives could increase the supply of organs and save lives. Lets look at the problems and paradoxes of NOTA. 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...

6 About one-third of potential living donors are incompatible with their intended recipient. Kidney exchanges (trade) make everyone better off. Kidney exchanges encourage donation with incentives: Donors give a kidney so that their loved one gets a kidney. A kidney is clearly valuable consideration so kidney exchanges could be illegal under NOTA. The Norwood Act (2007) amended NOTA so it would not apply to kidney exchanges. Kidney exchanges are important but limited because barter is much harder than monetary exchange. Picture from UCLA Kidney Exchange.

7 NOTA prohibits the receipt of valuable consideration for any organ for human transplantation but its not illegal to compensate organ donors when the organs are used for other reasons. Absurd situation: Whole body donation for medical and scientific uses is often compensatedtypically a free cremation. As a result, there is a surplus of whole bodies used for scientific research and a shortage of organs needed to save lives.

8 Following the whole body donation model consider the following: Support for financial compensation is growing. All of the following are now in favor of testing the idea of financial compensation for cadaveric donation. The American Medical Association The American Society of Transplant Surgeons The United Network for Organ Sharing (UNOS) Dear Ms. Jones, as you may know, it is our standard policy to offer a gift of $5,000 to the estate of the deceased, as a way of saying "Thank you for giving the gift of life." The money can be used to help offset funeral or hospital expenses, to donate to your loved ones favorite charity, or simply to remain with the estate, to be used in any manner the heirs see fit. No price can be placed upon the many lives that can be saved by your gift. The gift for the gift of life is merely a token of our deep and sincere appreciation for your generosity at this most difficult time.

9 In 2010 Israel legalized payments to donor families to "memorialize" the deceased. Funds for memorials may be as high as 50,000 shekel, or $13,400. The money is paid by a nonprofit group and may be used in any way the families see fit to memorialize the deceased. In the ceremony to present the first check under this program the director of the charity making the memorial payment, said: "In this country we always talk about military heroism.... [T]his is clearly a case of civilian heroism. [His organs] saved four lives.... [T]he family should be blessed. In 1994 the Pennsylvania legislature established a trust fund to reimburse donor families up to $3000 for funeral expenses but the plan was never implemented because of fear that it violated NOTA.

10 Organs today are treated like a commons – anyone can receive any organ whether or not they were willing to contribute to the commons, i.e. be an organ donor. Consider a no-give, no-take policy for organs. People who have signed their organ donor card are given priority if they should one day need an organ. Advantages of no-give, no take. A.Satisfies most peoples moral intuitions. B.Can be implemented easily be adding points to current system. (Similarly to program already in place for live organ donors.)

11 In Singapore anyone may opt out of its presumed consent system but those who opt out are assigned a lower priority on the transplant waiting list. In Israel in the case of kidneys two points on an 18 point scale are given if the candidate had three or more years previous to being listed signed their organ card. is an organ club. Anyone can join. Members agree that if their organs should become available they will go first to a fellow LifeSharers member. Important. No-give, no-take systems are widely seen as ethical but their primary virtue is to increase the incentive to donate! Economic laboratory experiments suggest that a priority system could be very effective.

12 Due to the shortage more kidneys are being transplanted which in earlier years would have been regarded as marginal. Expanded-criteria donors (ECDs) refer to older kidney donors (60 yr) and those kidneys with some medical contra-indications. ECD kidneys have a reduced life- expectancy than kidneys from say young, auto- accident victims. Raises possible issue of better matching. Today we give 20 year old kidneys to 60 year old patients. LYFT – life years from transplant is a proposal to better match kidneys to patients to maximize life years from transplant (LYFT).


14 About 40% of all kidney transplants are from live donors. Nobel prize winner Gary Becker and Julio Elias (2007) combine estimates of the value of life (willingness to take risks for monetary compensation) and the small risk of donating a kidney to calculate that: A payment in the range of $15,000 would double the number of live transplants and eliminate the shortage.

15 Kidney chains begin with a donor who does not receive a kidney (to a loved one) in return. If the original donor gives to someone who has a willing but incompatible live donor a chain can be created. Financial compensation could potentially be used to begin many more kidney chains. Picture from People Magazine, Nov. 30, 2009

16 Iran is the only country in the world regularly paying compensation for live donors. In a new program, Singapore allows payments for lost income, medical costs and lifetime insurance coverage. First payment was Nov The Iranian system began in 1988 and eliminated the shortage of kidneys by Iran is the only country in the world without a shortage of kidneys. The Iranian system is managed by a nonprofit, volunteer-run patient association. Payments from government and charity are ~$3,500- $6,000.

17 Compensating donors does not necessitate any change in how organs are allocated. We can compensate donors but continue to allocate organs according to the UNOS point system. Compensation need not be upfront but could come in the form of an annuity, tuition voucher or contribution to a retirement plan. In the latter case compensation should be a higher amount. Compensation should also include a substantial non-monetary recognition for the gift of life.

18 Dialysis is expensive and most of the cost is paid by the Federal government through the End Stage Renal Disease (ESRD) program which serves over 500 thousand patients and has expenditures of $24 billion a year (2007). Transplants pay for themselves within 2 years and are considerably cheaper than dialysis over prospective lifetimes. Matas and Schnitzler (2004) calculate that on a discounted basis each transplant saves $120,000 compared to dialysis (2010 dollars). Medicare Cost of Dialysis Versus Transplant Per-year cost for dialysis: $72,064. Cost of transplant (year one): $106,373. Per-year cost of transplant after year one: $24,572.

19 A transplant saves $120,000. What would it take to increase cadaveric donation from 8000 to 12,000 a year? $2500, $5,000, $10,000? Assume, $10,000. What would it take to increase live donation from 6,000 per year to 12,000? Assume, $15,000. Thus increased organ donation could easily save the Federal government billions of dollars. On a pure cost-benefit analysis paying donors pays for itself! More importantly transplants increase life-expectancy and quality of life. At $10,000 per cadaveric donation the cost of financial compensation for 12,000 organs would be $120 million and savings would be $480 million. Net savings of $360 million per year. At $15,000 per live donation the cost of financial compensation for 12,000 organs would be $180 million and savings would be $720 million. Net savings of $540 million per year.

20 No hiding the fact of kidney tourism. Recall that millions of people suffer from kidney disease but in 2007 there were just 64,606 kidney- transplant operations in the entire world. Legal market versus illegal markets. Pakistani men show their scars from kidney donation. (The Pakistan market has since been shutdown.) Photo: Asim Tanveer, 2008.

21 Is it wrong to pay people to take on risk? Compensation is widely accepted as a payment for risk. The annual fatality risk from being a commercial fisherman in Alaska is 4 to 5 times higher than the one-time risk of donating a kidney. We honor people who risk their lives in the Armed Forces but we do not expect them to do so without compensation.

22 We call people who give an organ away, heroes. So why is it repugnant to sell an organ? Attitudes about what is repugnant change. Adam Smith (1776) noted that in his time: There are some very agreeable and beautiful talents of which the possession commands a certain sort of admiration; but of which the exercise for the sake of gain is considered, whether from reason or prejudice, as a sort of public prostitution. Examples: acting, opera singing and dancing.

23 Efficiency can be improved. 19% of recovered kidneys are not transplanted. Donation rates and transplant rates vary considerably by region. Life style factors can go a long way to reducing the demand.

24 The worldwide shortage of organs will get worse before it gets better. The shortage is increasing the number of countries that are experimenting with incentives. Lifting the ban on compensating organ donors would greatly increase the supply of organs saving many thousands of lives.

25 Alex Tabarrok Department of Economics George Mason University



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