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India's Kidney Donor Scam - If Illegal Markets Are So Expensive Why Not Legalise Them?

This article is more than 6 years old.

Authorities in India have just uncovered a fake kidney donor scam. There, as in almost all other countries, it's entirely legal--with varying conditions--to offer to donate a kidney to someone ill enough to need it. It's also entirely illegal to either pay or be paid for the donation. What has been uncovered here is a scheme whereby people faked documentation in order to meet the standards necessary for a legal donation in India. The donor has to be closely related to the recipient. So, the scammers faked documentation, family photos and so on, to make the paid donor appear to be the son of the recipient.

At which point the rather brutal and heartless answer from an economist is, well, why not just make it all legal? If people are going to buy and sell kidneys, why not make sure that it's safe of course and then let them get on with it? There might indeed be good reasons against the idea but we should at least work through those reasons and see whether they really do apply. The argument that we shouldn't buy and sell human organs just because we shouldn't buy and sell human organs isn't strong enough on its own. The more technical term here is that it's a repugnant transaction. We don't allow it just because we don't allow it. This is something that the Nobel Laureate Al Roth has done a lot of work on, is the reason for his prize--that and the process of creating markets in which such transactions can occur. What are the limitations we really should apply that is, not what limitations do we apply just because?

The story itself:

The Delhi Police on Thursday arrested four persons, including a woman, for their alleged involvement in the illegal sale and purchase of kidneys. The police was helped by a Rajasthan resident who has been in search of his missing friend.

Substantial work had to be done in order to make it look like the donor was legally able to donate:

He questioned her about the legalities involved, as one has to be related by blood to be able to donate a kidney, and she allegedly said: “That will be taken care of.”
...
After this began the process of giving Jaideep a new identity -- PSP Phani Kumar -- so that he could be presented as a family member. He was even given a makeover to pass him off as someone from south India. “He was taken for a haircut worth ₹2,600,” said a senior police officer.

He was made to stay with the family for a few days for people to be believe he was one of them. “My pictures were also morphed into the family pictures,” said Jaideep.

The police said the accused had managed to make fake documents, including Aadhaar card, Election Identity card and passbook of State Bank of India in the name of PSP Phani Kumar.

And the thing which really strikes is that this was all so expensive:

The racketeers fell into the trap and offered him Rs 4 lakh for donating his kidney.

So he would be paid Rs 400,000, call it about $6,000, or if you want to get an idea of what that would really be worth in the US call it in the $18,000 to $24,000 range. But look at what the scammers ask to be paid for the organisation of it:

Investigators said this was an interstate racket that had been operating for a long time. The racketeers used to charge Rs 30-40 lakh from each kidney recipient.

Only 10% of the money goes to the donor, the other 90% to those organising the donation. Which is really a pretty high price for people acting as agents. But then that's what happens in illegal markets. It's the very illegality which drives up the profit margin, much competition being scared off by said illegality. It's the illegality which makes drug dealing so profitable, it's the illegality which makes pimping even have an income, it's the illegality which offers a 90% gross margin on kidney matching.

At which point the obvious question is, well, is there a better way? Or, if you prefer, what would happen if people could just legally sell their kidneys?

Given that we do allow donation from live donors we've quite clearly not got any problem with the act itself, do we? So, all and any of our concerns are based upon it being just fine when done out of altruism but not when filthy lucre is involved.

We've even got good information that altruism is a better motivation too. The US blood market has both paid donors and voluntary donors in it. At one point an insistence was made that blood collected be marked with the source, paid or unpaid. And it quickly became very clear indeed that users much, much, preferred that donated through altruism. OK.

However, we've also got the other end of this problem. There simply aren't enough cadaveric kidneys to meet the demand. No, it doesn't matter whether we talk about presumed consent, giving everyone donor cards and so on. Far too many of us die of something which means that our organs cannot be reused for that to work. So, if people aren't going to waste away in dialysis--something that does eventually kill most given the treatment--we need to have live donors. And that brings us to the core of economics, for incentives matter. And whatever the incentives we offer today they're not enough to create the desired supply. People still die, every day people die, waiting for a donor kidney.

At which point, why not look at entirely the other end of the spectrum? Why not just allow paid donation? And we do have an example of this. Back during one set of sanctions (over the Iran/Iraq war I think) the Mullahs in Iran had a look at the numbers. They correctly noted that a transplant is hugely cheaper than dialysis for any number of years. Thus they instituted the world's only legal paid donor scheme. A certain amount is paid by the government to a live donor--why not, it's the government that will be paying for the dialysis, this saves money. The recipient can top this amount up if they wish. This is not an open and free market, you do not turn up with gambling debts and sell your kidney this afternoon so that you can pay off Fat Tony and thereby keep your kneecaps. But the result is remarkable. Iran has no shortage of kidneys for transplant, has no one dying on dialysis waiting for one.

That is, leaving aside any moral qualms, a paid market does in fact work. At which point we really should be asking whether those moral qualms might be a little too expensive in the number of people who die while waiting.

We know very well that incentives matter, increasing the incentives to supply increases supply, so why not legalise paid kidney donation? As is true of all those other illegal markets of course.