The Economics of Organ Donation

One of Greg Mankiw’s Ten Principles is that people respond to incentives. It always amazes us that policy makers overlook this simply concept. 

Getting people to sign organ donation card or even to donate blood has always been problematic and it may be a result of a lack of incentive. A recent study published by Knowledge@Wharton – the business school at the University of Pennsylvania – offers a solution to the dearth of organ donors. 

According to the study, there are currently 110,000 Americans on the wait list for organs yet only 40% of eligible Americans sign organ donor cards. In two of the three most populous states, New York and Texas, opt-in rates are just 7% and 10%. 

We understand that there is a thriving black market in organs. In that market, money serves as the incentive. Most people are born with two functioning kidneys though the body can function with only one. Thus, unlike most organs, donating a kidney won’t kill you. For some people, the cost of donating a kidney is less than the benefit (price) being offered in the black market. We don’t advocate an open market for organs, but not for ethical reasons. Our objection is based on economic reasons. The market is plagued by asymmetric information leading to both adverse selection and moral hazard problems. We are, however, in favour of compensation for blood donors. (No, two cookies and a glass of orange juice doesn’t cut it) 

The Wharton article explains an experiment done by Judd Kesler from Wharton and Alvin Rosh from Harvard. The experiment looked at the decision to donate organs. Instead of describing the choice in terms of organs however, the researchers used generic commodities. This removes any ethical bias from the experiment. A full description can be found in the Wharton article. 

The result of the experiment shouldn’t be a surprise to anyone. When given an incentive to voluntarily donate a commodity, the number of participants willing to agree to be donors increased significantly. The incentive was fairly simple. When it came time to decide who was to receive an organ, patients that were registered organ donors went to the top of the list. Patients who were willing to give up their organs upon death had a greater probability of receiving organs should they require them. 

Public policy makers need to recognize the powerful effects that incentives play in the allocation of scarce resources.