## T. Randolph Beard, David L. Kaserman, and Rigmar Osterkamp

Print publication date: 2013

Print ISBN-13: 9780804784092

Published to Stanford Scholarship Online: June 2013

DOI: 10.11126/stanford/9780804784092.001.0001

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# Compensation for Organ Donation and a Proposal for a Public Monopsony for Organ Acquisition

Chapter:
(p.170) 8 Compensation for Organ Donation and a Proposal for a Public Monopsony for Organ Acquisition
Source:
The Global Organ Shortage
Publisher:
Stanford University Press
DOI:10.11126/stanford/9780804784092.003.0008

# Abstract and Keywords

This chapter describes institutional arrangements for the introduction of compensation. It provides a simple mathematical analysis of the likely appearance of a socially directed monopsony procurement organization and establishes several propositions regarding the forms compensation might take. It suggests that both living and deceased-donor kidneys would be rewarded by such an entity, and at differing levels, at least in the early stages and in countries with severe shortages. The chapter reviews the limited empirical evidence relevant to the question of organ compensation rates, and argues that payments are likely to be well below those levels at which cost savings are consumed in acquisition expenses. On the contrary, it is quite likely that organ acquisition will be cheaper under a compensation program. The issue of the effect of offering compensation on altruistic donation levels is also addressed, along with criteria for organ recipients, as well as donor evaluation and enrollment. It is argued that the introduction of compensation for organ donation, for both deceased donors (all organs) and living donors (kidneys), could be implemented quickly in many countries.

# Introduction

While inefficiencies in most countries' procurement systems would allow some improvement in performance without introducing economic incentives for donation, we argue that such incentives are an indispensable part of any reform effort capable of eventually eliminating the waiting lists and ending avoidable deaths. Even with such incentives, eliminating the lists is going to take years. However, for many reasons, introducing economic incentives for donation, for both deceased and living donors, is likely to fundamentally eliminate the organ shortage problem. The introduction of such incentives is itself a significant problem in economic institutional design, however, and while many such systems can be imagined, we propose a particular sort of approach that offers conceptual and practical advantages.

It is our hope that this chapter will stimulate serious debate and, as soon as possible, action in the introduction of economic incentives. We recognize the high degree of resistance such a change is likely to encounter, but we hope that some of the suggestions made here will mitigate those complaints sufficiently so that something effective can be brought forward.

# Proposals for Material Incentives to Donating Organs

Several important questions about donor incentives have been posed in the literature, and these must be addressed. What sort of “market” should be introduced, (p.171) and how should it be organized and/or regulated? How would property rights be allocated, and how would that allocation affect system performance? Would both living and cadaver donors receive compensation, and would such compensation vary? What does the performance of other markets for body parts, such as whole cadavers, eggs, semen, tissue, and blood and blood products, tell us about the likely workings of an organ market? What would be the financial consequences of such a compensation-based system, and what prices might prevail? How would such a system guard against abuses of donors or prevent the allocation of organs by criteria that are ethically dubious?

## Conceptual Problems with a “Market for Organs”

It is important to emphasize, with Barnett and Kaserman (2002), that one should distinguish between a “market,” as that term is ordinarily used, and proposals that merely involve economic compensation. For the economic layman, “market” often seems to imply a generally chaotic “free for all,” in which anything and everything is for sale to the highest bidder. This image, which has been steadily reinforced by the very negative picture presented by unregulated organ markets in poor countries, may be partially to blame for the unwillingness of many physicians to support compensation proposals. Yet, in the proper meaning of the term, focusing on its institutional framework and legal constraints, we have a market now. The difficulty is that the market we have is regulated in the most extreme fashion imaginable: reciprocal trade is illegal, and violators face public sanctions. These rules limit the ability of those who need the organs (demand side) to induce those who have them (supply side) to actually provide the organs.

These considerations lead us immediately to the problem of what is being supplied and what is being demanded. Clearly, organs are inputs to transplants, so their demand is derived—that is, arises from—and depends on the demand for something else. Further, transplants are desired by people who, by and large, do not pay for them: in almost all countries, the greater part of all solid organ transplants are financed by public money. In countries with national insurance funds, dialysis, pre-and postoperative care, transplantation costs, organ procurement costs, and drug therapy are all publicly financed. Even in the United States, where there is no system of universal health care payment, the End Stage Renal Disease (ESRD) program and allied programs pay these costs in most cases (private payers are involved in at most 10 percent of transplants).1 Third-party payment is by no means rare in the medical industries, but it does raise the conventional problems of moral hazard and inefficiency.

(p.172) Furthermore, it is not really realistic to say that a particular ESRD or cirrhosis patient “demands” a transplant in the economic sense. Rather, in concert with, and under the advice of, his or her physician, the patient agrees to be placed on the waiting list or to seek a living donor among family or friends. Indeed, some physicians who are skeptical of compensation for donation suggest that any increase in organ supply will be matched or exceeded by an increase in demand as physicians put more patients on the waiting lists. This conjecture suggests that they view the “demand” as being largely, or totally, under the physicians' control.

In most cases, earlier discussions of organ markets, or of organ compensation systems generally, have skirted these complexities, and the approximate one-to-one relationship between a suitable organ and an organ transplant has made these simplifications less than fatal. For example, Becker and Elias (2008) describe the “demand for transplants” and reasonably portray this demand as conventionally downward sloping in price on the grounds that “in most nations, the cost of transplant surgery is mainly borne either by governments or by private health insurance companies. Their willingness to qualify individuals for this expensive surgery increases as its costs decline. This is the main reason why effective demand … increases as costs fall” (p. 8). Other researchers, such as Barnett and Kaserman (2002) and Wellington and Whitmire (2007), define the quantity demanded of transplants (of kidneys) as being equal to the number of current transplants, plus the appropriate change in the waiting list, controlling for removals for death or sickness. In this case, demand is inelastic—that is, it is not dependent on price, at least over relevant intervals of costs.

As mentioned earlier, most analyses of the shortage take as their starting point the supply and demand model, which has the virtue of illustrating the shortage directly as the distance between demand and supply at a price of zero (for the organ). In this framework, the solution to the shortage is to allow the prices paid for organs to rise to a level that would equate supply and demand. This is, indeed, a sensible view. However, this conceptualization masks at least two important factors that may materially affect any attempt to implement a compensation scheme.

First, it is difficult to envision what an adjustment process would look like when one accepts essentially universal third-party fixed payments. Unless patients themselves, or agents acting for them, were to somehow enter into a bidding process, it is not clear how the price adjustment is supposed to occur. If we were to compensate organ donors, then for reasons discussed following and elsewhere, we should expect to obtain more organs than currently (p.173) are. However, would we necessarily obtain the number of organs that would “clear the market” in the sense suggested by the competitive analysis? Even if a public funding authority took it upon itself to adjust prices to achieve some reasonable and explicit target, such as reducing the end-of-year waiting list by 10 percent, only experience is likely to allow them to come close to that goal. Thus, although the supply–demand analogy is a very useful one, it does not by itself suggest a clear means for implementing a compensation system by a third-party authority.

Second, circumstances are even murkier when the variety of possible payment mechanisms for organ donation is considered. For example, the influential essay by Hansmann (1989) proposes a rather special system related to that of Schwindt and Vining (1986), which utilizes a “futures market” based on annual (one-year) contracts, in which health insurers would pay for obtaining the agreement of the potential donor to allow for organ removal should circumstances allow it. In these cases, obviously, supply and demand would refer to these future contracts, rather than the organs themselves, and the prices involved would be prices of these contingent claims. We discuss this more later in this chapter.

## The Becker and Elias Model

Perhaps the most important previous “market” model is that of Becker and Elias (2008), and it is useful here to review it briefly, if only in broad outline. Becker and Elias specify the relevant demand as representing the demand for renal transplants, of which a kidney is an indispensable input. Currently, compensation to suppliers is regulated at a zero level, resulting in a shortage. Using recent and fairly reasonable data on the cost of a U.S. kidney transplant and attendant care ($160,000), they illustrate the shortage as equal to the difference between the quantity supplied and the quantity demanded at a zero kidney price. In Figure 8.1, Q0 represents the quantity of kidneys available for “free,” and Q2 equals the quantity demanded at this price. The curious appearance of the supply curve reflects an assumption regarding the supply of living-donor kidneys described below. The shortage is the difference (Q2Q0). Demand is downward sloping for reasons discussed previously. In order to specify the effect of allowing donor compensation on the supply of kidneys for transplant, Becker and Elias argue, as have others, that (1) the number of deceased donor kidneys is probably insufficient to meet the demand in the United States so that compensated living donors will be necessary, and (2) the number of potential living donors is very large, so one may take the supply of living-donor (p.174) Figure 8.1 The organ market and the shortage, including living donors (after Becker and Elias) kidneys to be infinitely elastic at some price Pe per kidney. In other words, living donors will be the “marginal” suppliers, so their supply price will determine the market clearing price. Using a risk-compensation calculation, Becker and Elias propose about$15,000 as a reasonable estimate of the supply price of a living-donor kidney in the United States. In terms of Figure 8.1, then, Pe can be taken to be this “market clearing” price for a kidney, and Q1 the resulting market quantity.

We address the specific method used to obtain the kidney donor compensation rate of $15,000 later in this chapter. Here we want to discuss two limitations of this approach: the use of a representative consumer type model and the lack of an explicit relationship between the market clearing price and the waiting list. The representative consumer type calculation places a value on the risk a donor undergoes in making a donation (on average) and certain other considerations, such as quality of life after donation. The assumption of a nearly unbounded supply of living-donor kidneys that are medically acceptable at a price of$15,000 may eventually be borne out, but such a calculation, based on an expected utility model for a representative consumer, can at best only estimate the price an “average” potential supplier might require, though only a fraction of people will be close to this average. Thus, many persons would surely require far higher prices, while likewise some might be willing to sell (p.175) for less. Although living donors may well constitute the “marginal” supplier, it is quite unlikely that the marginal living supplier would be, in any sense, “average.” The maximum number of feasible transplants in a year that would be medically reasonable greatly exceeds the one-year shortage as measured by adjusted changes in the waiting list. Yet, even if one assumed the United States began performing 40,000 renal grafts a year after introduction of compensation, the implied number of compensated living donors is still minuscule compared to the potential supply of living-donor kidneys. If one accepted living donors from abroad, the supply would be larger still. (The Becker/Elias calculations, by using U.S.-level income data, implicitly rule out such international supply.)

More importantly, though, the Becker/Elias approach, by utilizing the supply–demand framework and identifying the shortage in the conventional manner, may well understate the numbers of transplants a compensation policy should allow. Clearly, it is fair to say that stabilization of the waiting lists, with appropriate allowance for deaths and other sorts of removals, can be denoted an “elimination of the shortage,” and we accept this nomenclature. It is also apparent that no policy short of a great medical breakthrough would allow for the elimination of the waiting list in any period as short as one year. Moreover, the Becker/Elias assumption that those transplant components other than the organs are available in infinitely elastic supply is a proposition that seems unlikely to be literally true. At some point, the costs of transplants and organs become a consideration despite the high costs of dialysis, and economists have long observed that while increases in quantity can lower unit costs, the greater the time allowed for a plan to be fulfilled, the lower the total costs can be.

## Spot versus Future Markets

In the case of a cadaveric organ, it is possible either to buy the right for organ removal from the individual prior to his or her death or to buy the organ from the bereaved. Generally, the body of a deceased person is the property of his or her family or estate, although even the common law is sometimes unclear on this question, since numerous prohibitions on the use of a cadaver are also recognized. Compensating the bereaved for the right to remove organs for transplantation purposes is only possible after death. Here, organ explantation and compensation would be effectuated by a “spot market.”

Buying the right to remove an organ postmortem from a living person, however, is possible in two ways. In the first, the donor makes an agreement that organs may be removed postmortem on the condition that he or she dies in specific circumstances suitable for organ donation. Upon this promise, the (p.176) (potential) future donor is immediately compensated. Due to the low probability that the specified circumstances will occur, the compensation will also be low.2

The second case differs from the first in one important way. The compensation is paid only after death if the circumstances suitable for organ transplant actually occur. Here, high levels of compensation are possible, but it must go to the donor's estate.

Convincing the bereaved to donate the organs of a deceased family member has proven to be difficult for medical staff, even when a valid donor card exists.3 Meaningful compensation to the bereaved could provide a considerable number of organs that remain in the deceased and, thus, are wasted. Offering compensation in exchange for a promise of organ donation may be assumed to lead to similar results. Immediate compensation will be low, but it will also be guaranteed and acquired by the (still living potential) donor, whereas future compensation, necessarily of a potential nature, would only be acquired by the bereaved. The Spanish model approach relies completely on compensation postmortem, and we suspect this is the most efficient mechanism.4

## Postmortem versus Living-Donor Organs

Although compensation holds the promise of greatly expanded organ supply, the way compensation will be used will differ substantially among organs, primarily (but not solely) due to the necessity of obtaining hearts, pancreas, almost all lungs, and most livers from deceased donors. While liver transplants from living donors are possible, and are actually common in Japan, the burden on the donor is much greater than in the case of kidneys, and such transplants represent only about 4 percent of liver grafts in the United States (OPTN, 2011).5 Fortunately, cadaver donor numbers may be adequate to provide for substantial increases in transplant rates for livers in many countries, including the United States. In contrast, the supply of cadavers, even if they were literally confiscated in every feasible case, is almost certain to be inadequate to stabilize adjusted waiting lists for kidneys, at least in the near future. (For various estimates of the numbers of potential cadaver donors in the United States, see Evans et al., 1990, 1992; Sheehy et al., 2003; and Delmonico et al., 2005.) Thus, as Breyer and colleagues (2006) and other researchers have suggested, it may well be necessary to have active living-donor programs in most industrialized nations. In less wealthy countries, cadaver utilization is even less palatable due to the lack of trauma centers equipped to perform the necessary removals. Thus, in the case of kidneys, aggressive expansion of transplants will ordinarily require (p.177) compensating living, unrelated donors. (Related living donors will no doubt persist under any system.)

# Donor Reaction to Compensation

Historically, many of the most influential objections to compensation/market reforms have focused on the effects of the introduction of explicit economic incentives on donor behavior. In particular, if one could credibly argue that compensation would reduce the numbers of organs obtained or would degrade their average quality, any reform of that sort would face a serious hurdle, to say the least. However, all arguments in favor of economic incentives for donors assume that the numbers of organs obtained would thereby increase and that their quality would not be degraded in any serious manner. The related problem of the proper use of living versus cadaveric donors, when such choices are feasible, is also relevant here, as many of the critics of compensation systems make arguments that have quite different implications for these two organ sources.

## The Issue of Strictly Altruistic Donors

The claim that the introduction of compensation would dissuade many altruistic persons from making donations must be addressed, and such conjectures are closely tied to ethical arguments against compensation. The essential claim arises from the belief that altruistic behavior can be undermined, or “crowded out,” by the introduction of monetary incentives. This point of view is strengthened by research showing that, in some cases, monetary incentives can lead to a reduced supply of the desired article or behavior. However, from the social perspective, the primary question is, will compensation lead to an increase in the net number of organs for transplantation (at a reasonable cost)?

The criticisms of compensation systems briefly mentioned earlier may also be illustrated using Figure 8.1. The claim that legally institutionalized compensation would undermine altruistic donation implies that the supply curve with altruistic quantity Q0 would move to the left. However, there also are the nonaltruistic donors who react positively to price incentives. What may be the net effect on total supply? We explore this question by using a simplified version of the analysis provided by Barnett, Beard, and Kaserman (1993) and refer to Figures 8.2 to 8.4.

We consider two groups of potential donors. Members of group A donate their maximum amount of organs, during some relevant time period, at a price of zero. With rising prices paid to others, members of A donate increasingly (p.178)

Figure 8.2 Total organ supply—groups A and B exhibiting equal (absolute) supply elasticities

Figure 8.3 Total organ supply—group A's supply elasticity is (absolutely) smaller than group B's

less. Group A, by donating less the more others are paid, may be called the “repugnance group.” In contrast, members of group B donate their minimum amount at a price of zero but increase their donations with rising prices paid to members of B. Group B may be called the “egoistic group.” Group A exhibits a negative and group B a positive price elasticity of supply.

We consider three constellations of price elasticities of supply: group A's elasticity may be equal to, smaller than, or larger than that of group B (in (p.179)

Figure 8.4 Total organ supply—group A's elasticity is (absolutely) larger than group B's

absolute value). The amount of group A's (negative) price elasticity of supply is an indication of the degree of its repugnance to price incentives offered to others. For illustrative simplicity, we only consider the case where the maximum supply quantity of group A equals the minimum quantity of group B. However, other assumptions in this respect do not change the results.

When the organ supply elasticities of A and B are equal (Figure 8.2.), total supply is at first constant—that is, it does not react to an increasing price. Beyond a certain price threshold, however, total supply increases with rising prices. When group A's supply elasticity is smaller than group B's (Figure 8.3 ), total supply increases over the whole price range with rising prices. When group A's supply elasticity is larger than group B's (Figure 8.4 ), total supply at first decreases with rising prices. Beyond a certain price threshold, however, total supply increases with rising prices.

The simple diagrammatic presentation suggests the following:

• When the price elasticity of supply of group A (those disgusted by price incentives) is smaller than that of group B (those stimulated by price incentives), the total supply of organs increases with increasing prices over the whole range.

• When, by contrast, the price elasticity of supply of group A is larger than that of group B, the total supply of organs at first decreases, then increases with increasing prices. However, there is a price above which total supply starts to increase. A constant or even decreasing total supply is only possible in a “low” price range.

• (p.180) Thus, the introduction of too low or too slowly rising financial incentives may initially have no positive net effect on donation, and could in fact reduce it.6 However, the eventual occurrence of a positive net effect with rising prices is rather plausible.

• The development of total supply (by groups A and B) under the influence of increasing prices is principally independent of the group size—that is, independent of the relative amounts of the maximum and minimum quantities supplied at zero price.

• A significant (and preliminary) decrease, after the introduction of financial compensation, is only possible when group A is large compared to group B.

Thus, it is an empirical question which situation—Figure 8.2, 8.3, or 8.4—is most relevant and at what price threshold total supply will begin to rise.

A significant percentage of organs obtained worldwide for transplantation (some estimates place it at 10 percent—see Brown and Glenn, 2007) are paid for, although often in illegal or legally dubious circumstances. Such payments themselves may damage the altruistic system, a phenomenon we call “dirty altruism.” However, it is clear that, despite the shortcomings of the current procurement apparatus, thousands of people continue to make donations under more or less altruistic circumstances. This implies, of course, that these donors are not dissuaded from donation because others sell organs, albeit illegally. Regardless of how the procurement system is ultimately constituted, it is clear that we will observe both altruistic donation, especially among family members needing kidneys, and sales.

Finally, there is limited evidence on willingness to sell cadaveric organs. Surveys conducted by Barnett and Kaserman (2002) and Wellington and Whitmire (2007) provide some information. However, this evidence does not really address the issue of whether or not compensation and altruism can successfully coexist, except to the extent that the survey instruments did include an opportunity for respondents to express unwillingness to sell their organs. Unfortunately, the design of the instruments does not allow the researcher to reliably distinguish between unwillingness to sell at any price and a willingness to donate at a price of zero. However, large numbers of participants express their willingness to accept compensation now for the removal of their organs upon their deaths, a sort of option market experiment. If these percentages are in any way indicative, then there are sufficient numbers of persons willing to sell cadaveric organs such that the loss of altruistic suppliers (except those (p.181) living donors donating to family members) would not cause total donations to fall.

Rodrigue and colleagues' 2006 survey-based analysis presents evidence on the attitudes of family members of potential deceased donors in the United States. A total of 561 people, of whom 348 consented to donation and 213 did not, were queried on their attitudes toward compensation, presumed consent, and “donor consent” rules (also termed “primary donor” policies, in which the expressed consent of the deceased toward donation is implemented regardless of the views of the next of kin). Particular interest attaches to differences, if any, between the feelings of donors and nondonors regarding payments for donation. In the great majority of cases, people state that the offer of compensation would not have affected their decisions, although those who did not donate are statistically more likely to change their choice (and donate) in response to such offers than are those who donated. Unfortunately, it is difficult to generalize these results due to the construction of the sample used and the highly hypothetical nature of the questions asked. However, the results suggest both that financial incentives are effective and that the degree of aversion to compensation may differ between donor and nondonor groups. We have several examples of actual donor compensation that, if inconclusive, certainly provide no evidence that would suggest paid donation for solid organs is dysfunctional. These examples include Iran, Spain, sales of whole cadavers in the United States, black or gray market sales, and data from public surveys.

## The “Taint” of Compensation

A number of researchers have questioned whether the potential “taint” of compensation is even relevant for many important subgroups of donors. For example, Goodwin (2006) laments the very low rate of donation among African Americans in the United States10 and argues that this unfortunate circumstance is a result of a lack of autonomy many feel within the U.S. health care system. Due to a number of racist-inspired medical crimes committed against American blacks (such as the infamous Tuskegee syphilis trials), many potential donors feel their interaction with health care providers affords them neither dignity nor control. This can be changed, however, by the introduction of a compensation system, since in such a case the donor's status is reinforced by actual money payments. Persons who receive meaningful compensation have more status, Goodwin argues, than those who do not.

From the theoretical perspective, Byrne and Thompson's (2001) model provides a cautionary note regarding the risk monetary incentives could pose for cadaveric donations that are determined by the decedent's family. Byrne and Thompson view the registration decision of the decedent as a signaling device in the economic sense. In any system in which the organ officials refer to the potential donor's family, the introduction of a money payment for registering as a donor causes this signal to be degraded: if society compensates registrants, then after death, surviving family might suppose the deceased registered merely for the money and did not really wish to donate organs. This, in turn, can produce a negative effect on donation under certain circumstances. Byrne and Thompson suggest that persons be required to explicitly register as donors or nondonors, thereby allowing the construction of rewards for donor registration that, in their words, “would exclude perverse supply responses and ensure that there exist prices at which cadaveric organ supply rises significantly” (p. 82).

## Lessons from Markets for Other Body Parts

Behind many arguments that compensation will degrade either the number of donors or the quality of organs lies the idea that the sale of body parts is inherently different from the sale of other things, especially when one considers nonregenerative tissues. These concerns appear related to the Kantian notion that persons are not means but ends, and they must be treated as such. (We address ethical issues in Chapter 7, and the interested reader should see Cherry (2005) (p.184) for a careful analysis.) It is important, however, to point out that the United States and other countries already have markets that deal in body parts or products, and by and large, these markets work along conventional lines. Because these markets provide potentially useful insight into how a compensation system might look, we review them briefly here.

Perhaps the most influential critique of economic incentives in markets for body products is Titmuss (1970), who combined the claim that paying for blood products in the United States led to serious contamination of the blood supply, with moral arguments in opposition to compensation. Both Titmuss's practical arguments and his moral reasoning have solicited considerable commentary and criticism, not least from Nobel laureate Kenneth Arrow (1972), who found Titmuss's claims quite unconvincing. Later evidence and analyses by Schwartz (1999), Callero (1991), Goodwin (2006), and especially Hippen and Satel (2008) have pointed out serious shortcomings in Titmuss's study. For instance, blood contamination problems should be attributed to the lack of effective screening during the period reviewed by Titmuss, not the fact that compensation was paid. Whenever money is offered for something, there is always an incentive to obtain that money by unscrupulous means. However, this incentive is not usually so large that one willingly foregoes the compensation mechanism to avoid it. Further, as Goodwin (2006) notes, the source of some blood contamination in the United States was homosexual men who unknowingly transmitted the HIV virus while making voluntary donations under altruistic motivation. Such donors were, demographically speaking, exactly the sort Titmuss claims are lost under paid donation systems: high-income, educated individuals acting out of public spiritedness. The problem, which would not apply to organ donation under current technology, was a lack of effective, quick screening for diseases, not the presence of donors Titmuss might not approve of.

In the United States, whole blood is obtained almost exclusively through altruistic donation, and pleas for donation due to critical shortages are a regular part of public life, particularly during the summer months when college students have returned home. This altruistic system allowed widespread contamination by HIV, attempted to cover it up, and precipitated an international scandal. In contrast, blood plasma suppliers in the United States are compensated, and this function is largely handled by private firms. One consequence has been widespread exporting of plasma products from the United States to Europe—and no U.S. shortages.

(p.185) A recent experimental study of blood donation by Mellström and Johannesson (2008) examined the effects of modest compensation (around U.S.$7 at the time) on blood donation by Swedish men and women. They found that while male subjects were largely unaffected by compensation, women responded negatively to the small payments offered but that this effect could be overcome by alternatively making the payment to a charity of the donor's choice. This result is consistent with the famous findings of Gneezy and Rustichini (2000) concerning the effects of small fines for late arrivals by parents picking up their children at Israeli day care centers. Imposing small fines led to more tardiness, since evidently parents felt that their obligation to be on time was undermined by the payments they made for lateness. However, Gneezy and Rustichini's work does not offer any particular indictment of compensating organ donors, except perhaps the observation that very trivial levels of compensation, offered, for example, to grieving families, might well be worse than no compensation at all. Meaningful compensation, presented as recognition by society of a laudable act, is quite another matter. Other body parts markets have also been seen to function “normally.” For example, sales of eggs and semen and the use of women's' uteruses by compensated arrangement (i.e., surrogate motherhood), which have allowed many thousands of infertile couples to have children, amount to a multibillion-dollar industry in the United States (Goodwin, 2006). Prices for these services vary in a manner consistent with the degree of intrusion each represents, although payouts are not astronomical. For example, egg donors are paid between$5,000 and $15,000 dollars, and egg removal requires surgery, hormone treatments for several weeks, and recovery time. Semen donors receive very small compensation even if they are desirable sources (e.g., healthy medical school students). Recent news accounts also establish that egg donation rates respond strongly to economic conditions. One may object, of course, that the examples of eggs, sperm, blood, and so on are inapt because these are materials that the body generates or has in abundance. In contrast, kidneys, liver lobes, and so on are quite limited and will be missed. While accurate, this complaint cannot be said to apply to compensation for deceased donor organs and therefore cannot be taken as a criticism of that practice. The history of blood donation and surrogate motherhood in the European Union differs from that of the United States in several important respects, and these differences reflect the gap between European and U.S. attitudes toward commercialization in health care. However, it is inaccurate to claim that the (p.186) European community has adopted a uniform approach: various countries differ widely in their attitudes and practices, and the gap between the strict legal requirements and observed practices can be quite wide. Some European institutions, such as the German Red Cross (DRK), subscribe to the ethical guidelines of the International Society for Blood Transfusion (ISBT). In general, blood donations are expected to be voluntary and unpaid. Vouchers or small awards for reimbursement of travel costs and incidental expenses, in addition to the provision of refreshments, are permitted. Blood procurement institutions are expected to be nonprofit, and the donor–recipient relationship must be anonymous (contrary to living organ donation). As a consequence, Germany has faced some problems in blood supply and has seen fairly widespread small-scale entry of alternative, private blood procurement organizations, such as Haema. The DRK has, of course, strongly protested against entry (i.e., competition) in blood procurement, and although the DRK has influential political allies, community procurers and university hospitals have actively expanded their blood activities in the last decade. While DRK pays donors nothing, Haema currently pays 15 euros, and university clinics pay as much as 25 euros for blood, with even higher payments for specialty donations such as thrombocytes. For the most part, such payments have been tolerated as within the scope of the “allowances” permitted by regulation. More controversial than blood procurement, the practice of surrogate motherhood has induced some countries to institute total bans rather than just prohibit payments. In Germany, the Embryo Law of 1991 (Embryonenschutzgesetz) prohibits surrogate motherhood, placement of children through surrogate arrangements, and the offering of surrogate services. Similar bans are formalized in France, Norway, Sweden, Austria, and Switzerland. In contrast, Belgium, Greece, the United Kingdom, the Netherlands, Spain, and Italy have either ambiguous laws or no specific laws banning surrogate motherhood as a medical procedure, although some countries, such as Britain, proscribe any payment to a surrogate mother. In addition, the legal status of surrogate parenthood is quite unclear; it appears that in many of these countries the courts are unwilling to enforce private contracts involving surrogate mothers. However, persons who are desperate enough to attempt to navigate the legal and social minefield of surrogate adoption have pushed the boundaries in this area, and surrogate motherhood activities are at least tolerated in many places lacking a clear prohibition. On balance, a fair-minded reading of the evidence suggests that compensation for donors, if done correctly and sensibly, would increase, probably (p.187) substantially, the number of organs available for transplant. In the cases of both deceased donors (and their families) and living donors, available evidence confirms the observation that people respond to incentives. ## The Issue of Organ Quality There remains the issue of organ quality under compensation, but here again, Titmuss's (1970) assertions lack force (Strauss et al., 1994; Hippen and Satel, 2008). In fact, there are good reasons to suspect that moving to a system of incentives may very well increase average qualities. To see this, we need only note that the increase in organ availability with compensation would almost surely allow stricter criteria by procurement officials. Indeed, one of the hallmarks of the growing shortages is the use of organs of increasingly poorer quality, as documented in Chapter 3. The increasing use of expanded criteria and non-heart-beating donor organs is sensible in these times of severe shortages, but it need not be in an environment with a greatly expanded organ supply. In response to the claim that persons who are willing to sell organs may be disreputable, one need only point out that today's testing and screening protocols are very advanced, and inferior organs will be detected. In the case of compensated living donors, one could impose a six-month period of testing and evaluation prior to organ removal. Matas (2006) provides a detailed discussion of desirable screening techniques under a compensated donor system. The issue of organ quality is also relevant for a public monopsony buying organs and is examined later in this chapter. ## Will Supply Drive Demand? Some medical practitioners and others oppose compensation on the grounds that it would boost demand for organs and would therefore never reduce the waiting lists (see, for example, Scheper-Hughes, 2000). They suspect that their colleagues (and themselves as well) would loosen the admission criteria for the waiting list in line with a growing availability of organs. Three objections can be raised here. First, this suggestion implicitly admits that compensation might be a powerful instrument to increase organ supply. Second, admission criteria are defined, at least in principle, by medical authorities, not by individual physicians. However, physicians indeed have some leeway to interpret the rules. But it is unrealistic to assume that the rules will be loosened solely due to an increasing availability of organs. Third, even if demand increases, what is wrong with that? An increased supply of organs will in any case reduce unnecessary death and suffering of patients, especially if these persons would not have (p.188) been placed on the waiting list before. Patient welfare, not waiting list statistics, should be the criteria for measuring progress. # Prices of Organs It is important to distinguish among organ prices that might arise in some hypothetical competitive market, organ prices that would be socially optimal under some reasonable criteria, and prices that have actually been observed in a variety of circumstances, most of which do not remotely resemble a well-designed compensation system. Complicating matters, one may obtain price estimates by a variety of means, including surveys, market models, and ordinary observation of transactions. In the case of models, assumptions on the structure of the market will materially affect predicted prices. For example, under single-buyer proposals, the mandate and resources given to the procurement organization will materially affect prices. Prices may refer to deceased donor organs, living-donor organs, or both. Finally, prices may reflect spot transactions, futures market type transactions, and so on, and many commentators (e.g., Matas, 2006) propose combining money prices with other benefits such as insurance coverage and cost reimbursement, leading to complex nonlinear prices and bundling. Thus, it is entirely inadequate to speak of the likely “price of a kidney,” for example, without substantial qualifications. In this section, our goal is extremely modest: we wish to arrive at some reasonable “guesses” at the order of magnitude of the prices organs might receive under plausible conditions. Thus, we will tie our review of organ price predictions made by other researchers with brief explanations of the methodology they employ and the degree to which that methodology is potentially realistic. Although estimates of organ prices exhibit substantial variation, we think it quite plausible that cadaveric organ prices will be very low (compared to transplant or dialysis costs). Prices for kidneys from living donors are difficult to estimate, but the benefits of renal grafts are so large that even very high prices would still support socially beneficial transplantation. ## Hypothetical Market Prices We begin by considering hypothetical competitive market prices for organs under legal trade. Three studies have considered this problem: Becker and Elias (2007), Wellington and Whitmire (2006), and Barnett and Kaserman (2002). The first assumes an infinitely elastic supply of living-donor kidneys at a price (p.189) calculated from consideration of the risk imposed by donation for a representative seller. Barnett and Kaserman (2002), and later Wellington and Whitmire (2006), use survey data, combined with observed donation levels for cadaveric kidneys under zero compensation rules to construct a hypothetical supply curve. This curve is then interposed over a completely inelastic demand for transplants obtained from analysis of changes in the waiting list. The underlying assumption is that potential suppliers will sell “once and for all” options on their kidneys should they die under medically acceptable conditions. Thus, the latter studies obtain option market prices for cadaveric organs for which one pays the seller now, while Becker and Elias obtain spot prices for living-donor kidneys, and these prices may also apply to deceased-donor kidneys, with these latter suppliers receiving payments in excess of the minimums they would accept. Depending on how the futures option contracts are structured, one expects to see prices that vary from modest to very low due to the minimal probability of any person becoming a donor under standard conditions. Howard and Byrne (2007) calculate these probabilities and find that they are quite small: the lifetime probability that someone age 18 will become an organ donor is somewhere under 0.003. (Despite these low probabilities, the authors demonstrate that the social value of additional registrants to organ donor lists is significant—between several hundred and several thousand U.S. dollars—due to the very large social value of a kidney transplant.) Thus, if one envisioned payments made now for (presumably binding) future donations should the circumstance arise, it is apparent that the social benefit calculus will allow these payments to be nontrivial, though not enormous by any means. The payments donors would actually require may be lower still. Spot sales of living-donor organs are clearly quite a different matter. Becker and Elias (2008) follow a different course. Unlike the preceding studies, they argue that equilibrium prices for kidneys will be determined by an infinitely elastic supply from living donors, of whom there are very many in comparison with patients needing grafts. Thus, renal transplantation is viewed as a constant cost industry, and long-run equilibrium prices will equal (minimum) long-run average costs. By assuming constant returns in transplantation, one need only estimate the long-run supply price of the kidney input. This is done using an expected utility model to estimate the willingness of the donor to accept living kidney removal. Donor costs arise from (1) a very slight increase in risk of death due to the surgery; (2) a small risk of nonfatal injury, reducing life enjoyment; and (3) lost wages and other costs of hospitalization and inconvenience. One calculates the payment that would make a representative (p.190) individual indifferent between selling a kidney or not. This approach is widely used in labor and insurance economics to evaluate compensating differentials for risky jobs and the like. One obtains different values (and thus predicted prices) for a kidney by imposing different assumptions on foregone earnings, value of life, the impact of nonfatal injury, and so on. Given fairly reasonable inputs, Becker and Elias suggest a market clearing price of about$15,000.

One must remember, however, that with free entry by suppliers (even within a country), the lowest-cost sellers determine prices. One problem with many analyses of the supply curve for organs arises from the inevitable use of “average” or “representative” values for model parameters. The price one would have to pay an “average” person to sell a kidney is largely irrelevant if the number of kidneys to be purchased is such that “average” sellers are not involved. Thus, if one were to buy 20,000 kidneys in a year, one would presumably have to pay only the amount equal to what the 20,000th least-cost seller will accept. Among millions of potential sellers, that individual may have a reservation price well below the average.

## Survey Evidence

Rather informal survey evidence using college students led Barnett and Kaserman (2002) to predict low prices for options on cadaver organs: “Hence, these preliminary data suggest that, had market-clearing supply prices been used for organ procurement [in the United States] in 1997, the market-clearing supply price for donors would have been less than $1,000” (p. 144). They infer this by noting that, according to survey results at that time, an increase in prices paid from$0 to $1,000 would increase the number of surveyed potential donors agreeing to sell by 117 percent, which, given their procurement target, would clear the market. Wellington and Whitmire (2006) base their analyses on the Barnett and Kaserman methodology, but they use a somewhat larger sample that they suggest is more representative. Their survey instrument is nearly identical. Again, the number of organs needed to meet a transplant target, based on waiting list changes with and without replacement of current living donors by cadavers, implies a completely inelastic demand. The implied elasticity of supply obtained by Wellington and Whitmire, however, is lower than Barnett and Kaserman's, leading to radically different estimates of the option prices: in 1996, the price necessary to produce equilibrium without replacing live donors was$135,242 (in the United States), while in 2003, equilibrating the market with living-donor replacement would cost $1.2 trillion per donor. These values, for (p.191) options on cadaveric organs, defy comprehension and are the result of perfectly inelastic demand (infinite marginal benefit) and very inelastic supply. Unfortunately, the survey instrument used to solicit values is truncated at a maximum willingness to accept value equal to$10,000, so one should interpret their findings primarily as suggesting that prices might be “high.” They conclude, “Given our findings, a competitive market for organs does not appear to be realistic” (p. 142). Certainly, competitive markets for goods with infinite marginal valuations and very inelastic supplies are not realistic.

While the Becker and Elias estimate is derived for living-donor kidneys, one would certainly expect that deceased-donor organs should sell for less, unless one were somehow required to obtain so many that purchases from extremely resistant sellers were necessary. Thus, one could look at the Becker and Elias numbers as providing strong support for the much lower cadaveric prices of Barnett and Kaserman. However, both the latter analysis and that of Wellington and Whitmire (2007) impose an infinite marginal benefit condition on the analysis, and that assumption is what causes the latter's estimates to become so large. Becker and Elias have downward-sloping demand for transplants, although their analysis does not shed light on what elasticity that demand might have.

## Price Observations from Illegal Markets for Body Parts

Evidence on organ prices obtained from simple observation must be regarded as suspect, since the observed market institutions are seldom wholly legal and transparent. Journalists Susan Brown and David Glenn (2007) provide a summary of various observations on prices collected from numerous, disparate sources. They report, for example, living-donor kidney sales in Brazil producing prices ranging from about U.S.$2,000 to U.S.$10,000 before the “racket was shut down in 2003.” Similarly, they note that the Iranian authorities pay about U.S.$1,300 (plus other valuable consideration) in their compensated program. In 2004, the World Health Organization (WHO) released a bulletin suggesting that international sales by vulnerable persons would support a living-donor kidney price of as little as U.S.$1,000. Nancy Scheper-Hughes (2000), a harsh critic of organ sales, reports on sales of organs from executed prisoners in China for about U.S.$30,000, although this apparently includes the transplant surgery and other care. Saudi Arabia began implementation of a program in 2006 that would have paid living kidney donors the equivalent of U.S.$13,330, plus health insurance benefits, but dropped the effort under a storm of criticism from outside medical authorities. Somewhat ironically, the Saudi effort was partially motivated by a desire to reduce travel by Saudi nationals abroad, where (p.192) scandals involving kidney purchases in Pakistan and India had occurred in the past. (Indian sales have been discussed at length by critics of compensation.11)

Numerous reports of black market sales of living-donor kidneys are available, often at prices of U.S.$10,000 to U.S.$20,000, not including surgical and ancillary costs. Middlemen of various stripes are often alleged to receive the bulk of these payments, leaving donors with relatively small proceeds. Except in the Iranian and Saudi case (the latter not being implemented), all of these examples involve illegal or wholly unregulated trade (or are pure speculation).

## Price Evidence from Legal Markets for Body Parts

We now turn to evidence from legal, regulated markets for human tissue and other body products. The variation in prices observed among such easily obtained, nonvital materials as sperm, blood plasma, and hair (typically less than $200 in the United States) and eggs ($5,000 to \$30,000), which must be surgically removed after a course of hormone treatments, suggests that donor inconvenience and suffering play a dominant role in determining costs. In the case of kidneys, the most likely live donor organ to be sold, donors undergo a low-risk but quite intrusive surgical procedure, and require weeks of recovery and follow-up examination for infections and so on. Further, some donors report difficulty in obtaining health insurance after donation, and many activities and jobs prohibit those with a single kidney from participation. The importance of these factors will undoubtedly vary widely across countries: nations with universal health funds will find it easier to attract donors than the United States, given the health insurance handicap. However, it is clear that living-donor kidneys obtained from sources in wealthier nations may be relatively expensive.

## In-Kind Compensation

It is relevant to remark that most compensation proposals of which we are aware, including the extended proposal by Matas (2006), typically envision living-donor compensation that includes benefits, such as health insurance, in addition to a cash payment. No doubt such an idea will be necessary in the United States, where no national insurance fund exists, but in-kind compensation also will appeal to many persons who harbor suspicions of monetary incentives. From the economic point of view, in-kind compensation is ordinarily inferior to cash compensation sufficient to purchase the same bundle of goods. However, by translating some of the compensation into medical insurance, one might conceivably assuage a conscience bothered by the surgery the physician performs on the donor. Governments, which tend to be shortsighted in the (p.193) extreme, may embrace the idea of giving compensation whose costs only come due in the future. Our sense is that no compensation reform will succeed without significant support from physicians, who will remain intimately involved in the transplantation decision. If the provision of insurance benefits assists in recruiting their support, it is well worth examining.

Some donors, also, may respond more effectively to compensation that combines money with other benefits and forms of recognition, since the motivations of persons to respond combine what Frey (1997) calls “extrinsic” and “intrinsic” components. Economics ordinarily focuses almost exclusively on extrinsic sorts of motivations (i.e., money rewards or penalties), while feelings of solidarity or moral obligation, called “intrinsic” factors, clearly play a role in organ donation. The practical significance of this circumstance arises because actions that affect extrinsic motivations can simultaneously undermine their intrinsic counterparts. Frey (1993) provides examples of economic relationships in which motivational “crowding out” appears to be significant.

## Importance of Deceased Donor Organs

Finally, the importance of deceased donor organs in any reform effort should be apparent. It is likely, Wellington and Whitmire notwithstanding, that cadaveric source organs will be far cheaper than those provided by living donors, even when living donation is highly feasible. The opportunity cost of a cadaveric organ is perhaps zero. One need not worry about violating the rights of cadavers, nor do they need insurance coverage or other ongoing support. Moral objections to compensation for cadaveric donation appear weak. Cadavers are, and will remain, the only source for organs such as hearts and lungs. For some organs, deceased donor supplies may be sufficient to support expanded transplantation going forward. The difficulty, though, is that one cannot obtain the actual donor's permission postmortem: it must either be done premortem or dispensed with altogether. To obtain permission before death, one must rely on a futures type mechanism, and such a system may be costly or unwieldy. On the other hand, obtaining permission from the family is a source of great frustration for many in the transplantation field, and a reduction in family involvement is the frequently cited wish of many physicians and a bedrock principle of “primary donor” proposals. It is perhaps in this area that direct and immediate financial compensation can have its greatest effect with the least possible controversy. By offering a grant for funeral assistance, the procurement officer is given another means of encouraging donation. The situation in Spain provides evidence in this regard.

# (p.194) A Model for Donor Compensation Using a Public Monopsony

Although several authors have debated and examined hypothetical markets for human organs, we feel it is unrealistic to expect any country to implement a true competitive mechanism. Rather, the ethical dimension of the organ procurement problem, combined with the many powerful interest groups involved, suggests that a rather more bureaucratic approach is far more likely to be feasible. To that end, we describe in this section our proposal, which relies on the establishment of a public monopsony organ procurement authority. We are especially interested in evaluating the behavior of such an organization under the requirements of social welfare maximization. This sort of framework is similar to Goodwin's (2008) proposal, but it has not previously been formally analyzed. Our framework here is quite simplified, but it retains those elements necessary to resolve questions such as the relationship between living-donor and deceased-donor organ prices or the roles of explantation costs in optimal organ procurement.

## Outline of the Model

If an unregulated competitive market for organs is unlikely, an unregulated private monopoly market is only slightly less improbable. Thus, we focus here on a publicly owned, welfare maximizing authority, which we envision as the sole legal purchaser of organs for transplantation. This authority will set compensation levels for both living-and deceased-donor organs, which must be obtained through voluntary supply by the legitimate owners. For simplicity, we ignore the dynamic nature of the problem, although we will say more about this complication later. Finally, we frame our discussion and analysis in terms of kidneys, although most of the basic principles will apply to other organs as well. Kidneys, however, are, and will likely remain, the primary organ of interest in discussions of reform.

We consider simple characterizations of the optimal behavior of a welfare-maximizing public monopsony organ procurement agency. Such an agency may potentially obtain organs—we will say kidneys—from two sources: deceased donors (denoted by the letter D) and living donors (denoted by the letter L). Transplants require organs on a one-to-one basis. Although some organs of both sorts may be obtained at no cost, quantities in excess of these limits require payments from the authority to the suppliers—that is, the donors. As is usually done, we take these payments, at the margin, to represent real costs from the social point of view. Further, we assume the compensation paid (p.195) to donors occurs in a spot market, with deceased donor awards going to the donor's family.

Because we wish only to characterize the set of plausible solutions in a simple, intuitive manner, we assume that costs and benefits of transplants, from the social perspective, may be well approximated by piecewise linear functions. Strictly speaking, this implies that the underlying problem has a quadratic form. However, since our interest does not extend to pathological circumstances such as multiple solutions, this simplification is adequate to the current purpose.

We may introduce the following notation:

$Display mathematics$

The “Organ Procurement Authority” (OPA) chooses quantities of both types of organs to maximize the net social benefits of transplants, written B(QL, QD)− C(QL, QD). Following our earlier simplification, we assume that the marginal costs and benefits may be written as piecewise linear functions of organ quantities. In particular, we have for the marginal benefits:

(8.1)
$Display mathematics$

(8.2)
$Display mathematics$

where the parameters A and θ have given, known values. In particular, the value of A is our simple measure of the value of a transplant when very few are being done, and an increase or decrease in A shifts the marginal benefit curve upward or downward uniformly at every quantity. Thus, changes in A have a very simple interpretation. Likewise, θ is a measure of the difference in the social benefit of a transplant performed using a deceased-donor organ as opposed to a living-donor organ. Thus, from the medical perspective, we have the condition 0 〈 θ 〈 1, indicating the diminished performance of cadaver-donor organ with respect to patient survival, delayed onset of graph function, required medication, and so on. Thus, any change in θ shifts the social marginal benefit of deceased-donor organs in the same direction.

It is important to recognize the hidden assumptions embodied in equations (8.1) and (8.2). Linearity aside, the representation given here implicitly assumes that if any type of organ is obtained, it will be transplanted into an appropriate recipient in social priority order. The problems of tissue typing and (p.196) compatibility are largely ignored. Although matching of organs to recipients is a crucial function of the public transplant authorities, the mechanics of this process will be ignored in our model. This is almost surely too strong, even given the very large shortages currently observed. Some donor organs are more socially valuable than others because of genetic differentiation and heterogeneity of patients on the transplant waiting list. It is probable that optimal pricing policies will, in fact, pay “bonuses” for certain types of hard-to-obtain or otherwise highly desirable organs. Our interest here is limited to the much simpler question of the determinants of price differences when qualities and costs differ. In that sense, having two classes of organs is sufficient.

Further, we have the marginal benefits of transplants declining in the usual manner. This presumably occurs because of differences in the health status and tenure of wait-listed patients. Socially, it is quite plausible that there may be widespread support for giving priority, encompassed here by the marginal benefit, to patients who have waited a long time for a transplant, although medically such patients benefit less (often far less) than patients who have dialyzed only for a short time or have not used dialysis at all.

Thus, we view living-donor and deceased-donor organs as strong but imperfect substitutes, the degree of their inherent substitutability given by θ. Of course, in choosing how many organs to procure, the OPA will also take into account supply prices and transplant costs, and these may differ substantially. Further, some supplies of both sorts are expected to be available to the OPA “for free.”

From the cost side, the OPA incurs, or takes account of, two types of costs: payments to organ suppliers (if necessary) and all other costs of the transplant therapy, which should be understood in a very broad sense. Transplantation as a treatment for, say, ESRD involves multiyear drug regimens, continuous monitoring and adjustment of immunosuppressive therapy, and so on. In the case of living donors, though, these transplant costs must be understood to include costs incurred by society with respect to the donor. While the assignment of costs into categories is somewhat arbitrary, living donors are likely to require some forms of nonprice compensation, such as an insurance benefit or medical monitoring, which should be taken to be part of the transplantation costs to society. Thus, we do not assume that the levels of compensation Pi are merely money payments to organ providers.

Thus, we define the marginal social costs of transplants as the sum of compensation to the seller and the costs of transplantation:

(8.3)
$Display mathematics$

(p.197) (8.4)
$Display mathematics$

The prices paid to donors may, however, be zero in those cases in which the authority uses less of one type of organ than donors offer willingly at a price of zero. This phenomenon causes the analysis here to differ from the conventional cases in which all input prices are positive. Although some quantities of organs are expected to be offered at no cost, these quantities will be less than the optimal quantities in many cases.

To capture this complication in the easiest feasible manner, we suppose that the supply curves are piecewise linear functions and that the supply decisions are not interdependent. Thus, we take the supply prices to be

(8.5)
$Display mathematics$

(8.6)
$Display mathematics$

so the given constants L and D represent the zero price supply quantities of living and deceased donor organs, respectively, and the given positive parameters k and r represent the responsiveness of supply prices to quantities obtained, respectively. Thus, the responsiveness of the quantity supplied of living-donor organs is inversely related to k, and similarly for QD and r.

We restrict our attention to those cases in which the OPA will pay for at least some organs from some vendors. This is reasonable given the evidently profound shortage arising currently under the zero price regimes.

Equating marginal benefits and costs yields a system of piecewise linear optimality conditions that are displayed in Figure 8.5, which is drawn assuming that the optimal policy of the OPA will be to purchase both types of organs. We investigate the cases in which only one type is paid for below. However, the optimality conditions have the following generic properties for all admissible values of the parameters. First, both optimality curves are convex, with the indicated slopes for their various segments. Second, the condition for optimal utilization of living-donor organs is flatter than that for deceased-donor organs for every value of QD for which both curves are defined. These facts imply that any optimal solution must be unique.

We note next that, generally speaking, there are three possible solutions, depending on where the curves cross, and these solutions will correspond to the cases where (1) only living-donor organs are paid for, (2) both types are (p.198)

Figure 8.5 Optimal organ procurement with positive prices for both sources (living and cadaveric)

paid for, and (3) only deceased donor organs are paid for by the OPA. Because of the large number of degrees of freedom in this system, it is relatively easy to generate parameter values that produce each of these solutions in turn. We begin our analysis with what appears to us to be the most plausible case: that in which both types of organs are purchased from vendors.

In the case of both types of organs being purchased, considerable algebra leads to the following expressions for the optimal quantities of organs:

(8.7)
$Display mathematics$

(8.8)
$Display mathematics$

where we have introduced the variable z = A − L − D, which has the convenient interpretation of being a measure of the marginal benefit of another best-quality organ at the point where free organs have been exhausted. Thus, z 〈 0 is true in the region where both organs receive positive compensation. The right sides of the equations are strictly positive in the region of interest, and these expressions allow us to derive a variety of comparative static results for optimal organ procurement. First, though, it is readily apparent that the prices associated with the optimal quantities will generally differ except by (p.199) chance. How they will differ, however—that is, which type of organ will have the higher price—is harder to say. Intuition strongly implies that living-donor organs bought for transplantation into strangers will be relatively costly compared to deceased-donor organs.

Comparative statics results for the effects of changes in parameter values on optimal quantities and prices are straightforward, given the reduced forms in (8.7) and (8.8). In the case of living-donor organs, increases in the marginal benefit A, or the free supply L, increase optimal organ quantity, but at a less than one-to-one rate. Increases in deceased-donor free supply D reduce optimal living-donor organ use, again less than one-to-one. Increases in the social marginal cost of a deceased donor transplant increases the use of living-donor organs, and the contrary effect is observed in the case of living-donor transplant costs. All of these results are relatively intuitive. Parallel results are obtained for optimal deceased-donor organ use. These results are shown in Tables 8.1 and 8.2. Given independent supplies for organs of both types, the price responses to parameter changes are straightforward as well.

Note that an increase in the free supply quantity of an organ—say, ΔL 〈 0—will increase the number of the same type of organs used, but the price paid for them will fall because of a net substitution toward the free organs, and price depends solely on the number of organs used beyond the free supply quantity. In addition, the quality level of the deceased-donor organs determines the degree to which they are good substitutes for living-donor organs, with the expected price effects at the optimal choices of the OPA.

We turn next to a review of the cases in which only one type of organ is bought, with the other being accepted only at levels low enough for the

Table 8.1 Comparative statics results for optimal quantities

Parameter

Quantity change

ΔA

ΔD

ΔL

ΔTD

ΔTL

Δθ

ΔQL

+

+

+

ΔQD

+

+

+

+

SOURCE: Authors.

Table 8.2 Comparative statics results for optimal prices

Parameter

Price change

ΔA

ΔD

ΔL

ΔTD

ΔTL

Δθ

ΔPL

+

+

ΔPD

+

+

+

SOURCE: Authors.

(p.200) free supply to satisfy the need. An examination of Figure 8.5 provides some insight into how these outcomes may occur. Consider first the case in which no deceased-donor organs are purchased. In this case, the intersection of the optimality conditions occurs on the northwest portion of the figure, which requires that (A + kL − TL)/(1 + k) be sufficiently close to, but less than, (A − TD). This can occur in a variety of ways, the simplest being a sufficiently large value for L. In other words, the optimal plan will involve paying only living donors if the supply of free living donors is “large.” Alternatively, if the quality of deceased-donor organs, given by θ, is sufficiently low, or the social cost of deceased-donor transplantation TD is sufficiently high, cadaveric donors will not be compensated in the optimal plan. Finally, if the free supply of cadaver donors is very small, it is inevitable that society will want to pay for deceased-donor organs.

The other case of asymmetric payments, in which deceased donors are compensated, while living donors are not, is also plausible, although here one must point to the absolute upper bound in potential deceased donors of medical usefulness. It is quite likely that in some countries (especially the United States), even very high utilization of deceased-donor organs will not be sufficient, and living donors will be needed. We represent this in Figure 8.5 by introducing an upper bound on QD and disregarding all points to the right of it. Calling this constraint point N, we may obtain an additionally constrained solution if N 〈 (θA + rD − TD)/(θ + r). The more severe this potential limit, the less likely it is that society will not pay living donors. So, ignoring this complication, we see that a solution without compensation to living donors is more likely when (θ A + rD − TD)/(θ + r) is close to, but does not exceed, (A − TL). Again, there are a variety of ways this can occur. Low cadaveric organ transplant costs, high numbers of free deceased donor organs, and lower marginal social values for transplants all make this result more likely. High living-donor transplant costs can also cause this to happen. However, it seems implausible to us that this sort of solution is likely to occur in most circumstances, for several reasons. First, in many countries, the cadaveric organ supply is almost nil due to a lack of medical facilities for maintaining respiration and heartbeat in brain-dead patients. The example of Iran is relevant to this case. This translates here into a very small value for D and a very large value for r. Second, we expect very large social values for transplants, particularly in the beginning, which translates into a very large value for A. Since θ 〈 1, this makes it increasingly unlikely that the optimal choice will involve no compensation for living donors. Finally, although we have witnessed global increases in reliance on living (p.201) donors, this growth must to some degree reflect the dire circumstances of the shortage. While highly motivated to donate to a loved one, most family members are not, from the cost (rather than benefit) perspective, the “low-cost” donors one would expect to see provide many of the organs under a compensated regime.

The analysis presented here ignores the role of time and the problem an OPA would have in optimally “working through” the waiting list. This is intentional. As is clear from the simplest model, the problem of optimal organ procurement with compensation will involve numerous parameters of largely unknown magnitude, and these are likely to vary across countries. Thus, one can obtain a variety of plausible solutions. Adding the problem of dynamic reduction of the waiting list would require further parameters relating to discounting, dynamic evolution of the patient population, and heterogeneity among patients on the waiting list. This complexity, in turn, will produce even further classes of solutions, all dependent on the values of parameters that are unlikely to be known well or at all. Each national OPA is likely to be required to develop its own model that reflects its own unique circumstances.

In summary, the analysis of this section suggests the following broad, relevant conclusions. First, optimal compensation systems will involve positive, though different, compensation levels for living versus deceased donors when the shortage is severe. As the waiting lists are reduced, one can easily imagine a suspension of compensation for one type of donor (probably the living donor), while the other sort continues to receive payment. Increases in the “free” supply quantities of different types of donor organs increase the total use of those organs, but at a less than one-to-one rate. Higher levels of compensation are offered for organs of greater value, but transplant-associated costs suppress the optimal payment. All these conclusions are fairly intuitive.

The social welfare maximizing monopsony model presented here is overly simple, and many important issues in organ procurement reform are purposively ignored. However, we believe that this kind of approach is far more useful and far more practical than are discussions based on competitive supply-and-demand models. Our discussions that follow will, when appropriate, refer to this regulated monopsony framework, which we view as the best feasible template for reform in most countries.

## Questions of Institutional Design

As the previous discussion suggests, we imagine a publicly funded organization, probably developed from existing OPOs in most countries, that can make (p.202) compensation available to both cadaveric and, where appropriate, living donors. Payments would be transparent and available to all who qualify. Prices would be set, initially by trial and error, in an effort to reduce waiting list sizes at reasonable rates. Explicit cost-benefit analysis can be used to assist in price setting and recruitment goals. An outside board composed of physicians, laypeople, policy analysts, and representatives of patient organizations would oversee the compensation program. Although initial operations will be somewhat experimental, it must be remembered that even a poorly managed compensation system is likely to increase organ procurement success when compensation levels are not set too low.

It is unlikely that these new procurement agencies will have to deal with the difficult decision of how to utilize substandard organs for any great length of time, since compensation will increase availability and, thus, choice. It is likely that direct payments on a spot basis—to the donor himself in the case of living kidney donation and to the family in the case of deceased donors—will be the most effective and the easiest to implement quickly. Offering insurance benefits to living donors should be studied carefully and may be desirable in gaining acceptance for the compensation model. Evaluation of cadaver donors would not differ greatly from current protocols.

Another possibility, previously not discussed to our knowledge, would dispense with “efficient” price setting for donor compensation and instead implement prices that satisfy certain normative (ethical) standards. The idea here, as with insurance provision, is to gain wider acceptance of compensation among the health care community. For example, since a donation will lead to possible potentially large savings to public insurance funds, one could compensate donors with a “share” of these gains, thus setting the level of compensation to reflect a “fair share” of the gain realized by the donation. Of course, unless the fair share is small, this mechanism is likely to lead to higher compensation than the pure economic mechanism. One plausible consequence of such high levels of compensation would be an “excess” number of willing donors: since the rate of compensation would not be calculated based on the supply response, there is no reason to suspect any balance between the numbers of organs offered and the benefits their use would create.

In the case of living kidney donors, several important criteria must be applied to ensure public interest. First, donors would be screened for some months prior to the organ removal to eliminate disease risk. Such screenings would also probably involve psychological assessment of donor motives and allow for a “cooling-off” period. Individuals who recently suffered traumatic (p.203) life events, such as the death of a spouse, divorce, loss of employment, and so on, could be asked to wait for later reevaluation. Lifelong follow-up would be implemented on all donors to constantly reassess the health risks of donation for persons in various health states, although current medical evidence suggests such risks are very low (Matas, 2008; quoted in Satel, 2008).

For many reasons, the best approach for the introduction of compensation mechanisms in many countries will involve trials. Goodwin (2008), in the context of the United States, proposes using the U.S. states as “laboratories” for this purpose and offers some model language to be used to modify the relevant laws to allow such experimentation. In the United States, the federal government has a long history of offering waivers to various states to conduct demonstration projects in areas such as welfare, job training, and so on.

One practical complication that accompanies the introduction of differing compensation regimes is a problem familiar to economists: when prices of any good differ among jurisdictions, an incentive for “arbitrage” is created by sellers seeking the best deal. One could imagine family members wishing that a deceased relative's organs be removed and transported to some other location where a trial offers compensation. Similarly, a living donor contemplating providing an organ to a stranger might seek out the most beneficial jurisdiction. The practical consequences of such flows are unknown, but it is not unlikely that some policy to deal with them will be necessary.

## The Allocation of Organs

The institution of a compensation regime for organ procurement need have no effect whatsoever on the algorithms used to allocate organs among patients. The use of compensation to motivate behavior is here restricted solely to obtaining organs. We presume that the organs thus obtained will be distributed in a medically and ethically defensible manner. In all probability, the increase in the numbers of organs available under compensation will make the task of allocating them far easier, as poor matches need not be contemplated and those patients representing somewhat reduced prospects need not be removed from the active lists so readily. Probably about 30 percent of the patients on a typical kidney transplant waiting list have high panel reactive antibodies levels, indicating that they may be difficult patients to successfully transplant. Such persons suffer tremendously under the current shortages, both because of a reduced likelihood of obtaining a good kidney match and the reluctance of transplant physicians to “waste” scarce organs on patients with reduced prospects. It is such persons, in the direst condition, who will most benefit from (p.204) the increase in organ availability. It is hard to regard that result as morally problematic.

## Concerns of Political Acceptability and Fairness

The use of living donors raises several questions that are not, primarily, of an economic character. For example, should foreign nationals be allowed to enter a country and sell their organs if they qualify? Economists might be tempted to say “yes” based on efficiency (cost) arguments. However, viewed more broadly, it is easy to imagine that such activities might severely undermine public support for the organ procurement system (see Chapter 7). By restricting suppliers to “locals,” one avoids many potential pitfalls, such as an inability to do follow-up on residents of foreign countries and difficulty in assessing motivation and past health history. As a result, we believe restricting sales to citizens of the home country, as is done in Iran, is likely to be desirable.

In addition, much criticism of compensation proposals comes from people who suggest such activities will amount to poor (i.e., “desperate”) persons “selling their bodies” to perhaps rescue a rich person from the consequences of a self-indulgent or debauched lifestyle. This image has so much weight with some critics that they give no consideration to the thousands of deaths the shortages cause. More importantly, this objection raises the sociological question, who will the donors be, and how will they differ from nondonors?

As influential critics of compensation, such as Dr. Francis Delmonico in the United States, often point out, evidence from India and Iran suggests that rich people do not sell their kidneys. Rather, suppliers of organs are typically in the lower socioeconomic classes. Although the actual data presented by Ghods (2002) are somewhat ambiguous, basic economic reasoning suggests that the most willing suppliers of organs will be those with lower incomes and, economically speaking, lower opportunity costs. The same is true in many countries with respect to police officers, soldiers, high-rise construction workers, and other dangerous occupations. Having a kidney surgically removed is not a pleasant experience. Thus, it is not realistic to expect that the wealthy will become paid organ donors.

In our proposed framework, however, the public authority that is charged with screening living donors and obtaining organs for transplantation could apply any criteria to donation that was both legal and had wide public support. If a society is offended by allowing the poor to become paid organ donors, they could in principle prohibit it. Alternately, the authorities could pay higher prices for donations from wealthier people, although such a scheme sounds (p.205) ridiculous on its face. However, the criteria for living donation, particularly in its sociological aspects, will undoubtedly be a topic for debate. For deceased donors, these issues may be less important.

The degree to which kidney supply will uniformly be a business of the poor, however, is by no means clear. In the case of deceased donor organs, the poor do not face any lower opportunity cost than the rich; the alternative use of the organs is to bury them. More generally, if, as Matas (2006) and many other proponents suggest, society were to treat and regard donors as heroes, then the differential between the donation participation of poorer and richer persons would be reduced as the monetary component of the reward became relatively less influential. As in the case of military service with volunteer forces (as in the United States, the United Kingdom, and Germany), it seems inevitable that those needing opportunities will be disproportionally represented, but it is not inevitable that participation need be so skewed as to undermine support for the institution itself.

On the other side of the donor demographic equation, of course, are those awaiting transplantation. Here, one can find reasons to doubt the criticisms based on donor status. In the United States, for example, the poor and minority populations are vastly overrepresented on the kidney waiting list: African Americans constituted about 34 percent of kidney transplant candidates on the waiting list in 2012, but account for only around 13 percent of the U.S. population. Transplants supported by organs obtained from disadvantaged or minority donors are likely to benefit minority patients. Prohibiting certain persons from receiving compensation for organ donation directly impacts other persons, often from the same disadvantaged populations, who are awaiting transplant therapy. Some analysts, such as Michele Goodwin (2006), have persuasively argued for introducing compensation based squarely on considerations of fairness to minority communities.

# Conclusion

From the evidence provided in this chapter we conclude that material compensation to organ donors would raise (and surely not reduce) the number of organs available for transplant. A monopsonistic agency, permitted to offer compensation to donors and committed to achieving something like a social optimum, would be a workable solution that can be realized quickly because the necessary institutions already exist in most countries. The organ “price” (compensation package) is likely to be in a moderate range, especially (p.206) for deceased-donor organs and especially when compared to the current cost of an organ transplant. Compared to the costs of continuous dialysis, the prices paid for organs will perhaps be negligible. Moreover, the monopsonistic organ agency would substitute for any direct interaction of donor and final beneficiary. Finally, the agency's procurement efforts could be restricted to its national boundaries. Thus, an “international trade in organs,” let alone its legalization, is neither a necessary element of this proposal nor supported by us. By contrast, the increased availability of organs can contribute greatly to a reduction of the currently existing international black market in organs.

However, it is likewise important to stress that we do not really know the “organ supply function”—that is, how the availability of organs rises in response to increasing compensation to donors. This may not only differ across countries but also between organs, and not least between organs from deceased and living donors. Moreover, the necessity to use organs from living donors will greatly differ among countries. Thus, what should be initiated is a wave of pilot projects in many countries with different systems of compensation to donors. The projects must be conducted in a scientifically controlled way to permit unequivocal conclusions and, eventually, to end unnecessary suffering and death of organ patients.

We believe that the introduction of compensation, done correctly, publicly, and transparently, will save thousands of lives and billions of dollars or euros. It is unnecessary and probably undesirable to move to a competitive market in human organs: in most countries, tremendous benefits will arise merely from introducing reasonable compensation within a reformed version of the current organ procurement apparatus. In our view, providing trained teams the ability to offer financial recognition to donors, both deceased and living, will be a powerful tool that will increase organ supply immediately. We believe that all available evidence suggests that such a course will be successful and that it is necessary.

## Notes:

(1.) The United Kingdom has gone so far as to ban all privately financed transplants, although this action is primarily a response to foreigners receiving self-financed transplants in Britain using organs donated to the NHS.

(2.) But see Howard and Byrne (2007) for careful calculations of the social value of potential cadaveric organ donors.

(3.) Abadie and Gay (2006) provide a “signaling” interpretation of donor cards. Breyer (2006) provides a discussion of the problems with family consent in Eurotransplant.

(4.) Barnett and Kaserman (2002) give a discussion favoring spot (as opposed to futures) market organization.

(5.) For living-donor liver transplants in Japan, see Todo et al. (2003).

(6.) This is what Gneezy and Rustichini (2000) have in mind—though in a different context—when they say, “Pay enough or don't pay at all.”

(7.) The Iranian system has faced severe financial stresses in recent years, and the value of the compensation offered to donors has declined. See Zargooshi (2008a, b).

(8.) Even the Declaration of Istanbul (2008) demands “comprehensive reimbursement” of the costs of donating an organ.

(9.) This evidence refers to billings; what families actually pay in the end is unknown.

(10.) It is lamentable because the distribution of blood groups differs among population groups. A low organ donation rate of African Americans increases the waiting time for organ patients of this group.

(11.) Goyal et al. (2002) provide a widely cited review of the circumstances of Indian living kidney donors.