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Alex Tabarrok on the kidney market

Summary:
Bob Murphy has a new podcast interview with Alex Tabarrok. (As Tyler would say, self-recommending.) One of my favorite segments discussed the shortage of kidneys for transplant, a topic I blog on quite often. Alex pointed out that the kidney shortage could be eliminated if there were suitably strong incentives for people to donate kidneys. And since the US government already pays for kidney dialysis, which is more expensive than kidney transplant, this sort of program would actually save money. Alex estimates that as many as 30,000 Americans who die prematurely could have their lives extended for a considerable period of time if we could eliminate the kidney shortage. You only need one Al Roth has written extensively of the subject of “repugnant markets” and the

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Bob Murphy has a new podcast interview with Alex Tabarrok. (As Tyler would say, self-recommending.) One of my favorite segments discussed the shortage of kidneys for transplant, a topic I blog on quite often.

Alex pointed out that the kidney shortage could be eliminated if there were suitably strong incentives for people to donate kidneys. And since the US government already pays for kidney dialysis, which is more expensive than kidney transplant, this sort of program would actually save money. Alex estimates that as many as 30,000 Americans who die prematurely could have their lives extended for a considerable period of time if we could eliminate the kidney shortage.

Alex Tabarrok on the kidney market

You only need one

Al Roth has written extensively of the subject of “repugnant markets” and the sale of kidneys is certainly an example of a potential market that most people find to be repugnant, at least at first glance. Alex discusses ways of doing this in a less repugnant way, such as paying the lost wages for people who volunteer to donate a kidney, or paying funeral expenses for kidney’s donated from people who die.

One particularly interesting example was to have a kidney market where the buyer and seller never interact, even indirectly. This would avoid a situation that many people mistakenly fear, the spectre of rich people buying kidneys from the desperately poor. One could have the government offer cash rewards to anyone who donates a kidney, and then have the kidneys allocated via a non-profit institution in exactly the same way as they are today, via a waiting list based on medical need.

While it’s true that the wealthy might still be able to game the system in some way, they already do so to some extent, even under the current need-based regime. More importantly, if the cash award were made large enough then there would be no kidney shortage and even the poorest Americans would get the kidneys they need. Iran’s system works something like this, and they have no kidney shortage.

It occurred to me that another tweak might also have some PR value (although personally I don’t believe it’s needed.) That would be to have background checks on all potential donors, and make sure they have a stable life with a job and no drug addiction. (Or at least their spouse has a job.) This would remove the scenario of homeless people selling a kidney to obtain the money for drugs or alcohol. Again, I offer this more as a PR suggestion, but with 30,000 needless deaths each year, we need to work hard to think of creative solutions.

The kidney discussion starts after the 1:04:00 mark, and is preceded by a fascinating discussion of the FDA approval process. Alex points out that we already have a vast drug sector that is free of FDA regulation, the so-called off-label drugs that were originally used to treat one illness and are later used for another illness for which they have never been approved by the FDA. The existence of this phenomenon suggests that something is wrong with the FDA process. Either the FDA should only test for safety (not efficacy) or they should require that even off-label uses be tested for efficacy. And yet the medical establishment defends this state of affairs, which suggest that the entire process is in some way not what it seems. As Robin Hanson says, health care is not about health.

I would prefer to just abolish the FDA.

PS. The segment from about 39:00 to 43:00 made me blush.

PPS: Off topic, I have a new piece in The Hill defending my Fed accountability and transparency proposal.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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