The recent episode of a Gurgaon-based doctor running a racket that transplanted kidneys has taken the nation by storm. People in need of a kidney came here from all over the world. As soon as a match was found (read poor person), the transplant was carried out.
The recipient got a kidney for anything between Rs15 lakh and Rs25 lakh. Out of this, the donor got Rs50,000 to Rs1 lakh; the rest was split between the doctors running the hospital and their network of middlemen. The media is trying to understand how the crime was organized and identify the players involved in it. The usual blame is on poor governance, weak laws, etc.
(Photo: Madhu Kapparath/Mint)
Alvin Roth of Harvard University has discussed similar problems in his recent paper, Repugnance as a Constraint on Markets, in the Journal of Economic Perspectives. Roth has given the problem an economic dimension.
It is a classic demand-supply problem. There is demand from various people who have failed kidneys and want a replacement. However, there cannot be a regular supply as markets for organ replacement are illegal. There are often illegal/unorganized markets for most banned products such as alcohol, and this Gurgaon case is no different.
Readers may ask how one can compare human organs and alcohol in the same breath. I, too, would agree with readers and am sick of writing about this. And that is precisely the point Roth is planning to make—repugnance in markets. Wikipedia explains: “Wisdom of repugnance describes the belief that an intuitive or ‘deep-seated’ negative response to some thing, idea or practice should be interpreted as evidence for the intrinsically harmful or evil character of that thing.”
How does repugnance impact the working of markets? Products/services which a society deems as repugnant, but are useful, will not trade in the way other products are. The laws against buying or selling kidneys reflect a reasonably widespread repugnance, making it difficult for arguments that focus only on the gains from trade to help in changing these laws. But that does not mean that gains from exchange can’t be realized. The repugnance can be reduced but it requires an attitudinal change in the majority of the population.
Another problem is that some kinds of transactions are repugnant at certain times and places, but are considered perfectly acceptable in other situations. An example is short-selling in financial markets, often abandoned whenever a country goes through a crisis, but acceptable before the crisis. We have no problem in buying long as that leads to prices going up, but are averse to short- selling as it depresses prices. But short-selling also helps correct prices, which is necessary for markets to function efficiently. Similarly, there was repugnance initially while selling pollution rights, taking insurance for children and the elderly in the family or predicting the markets, but it has reduced over a period of time. Alternatively, things such as servitude, slavery, dowry, etc., that were once acceptable, are considered repugnant now (and rightly so).
Coming back to the kidney case, Roth has argued for the need to design a market that enables more people to transplant their failed kidneys with someone who can lend his kidney for a price. In India, the Transplant of Human Organs Act, 1994, allows only relatives to donate organs (clearance may be required if the donor is not a close relative such as parents, spouse, etc.) It does not allow exchange of money between the donor and the recipient. Organ sales are banned. However, because of a loophole in the Act, which allows a donor to donate his organs before his death to any person (i.e., not his relative) “by reason of affection or attachment towards the recipient or for any other special reasons.” It is not hard to understand that this loophole was used to develop that sudden affection for adequate remuneration. However, the remuneration would have been anything but adequate and the spoils were mostly shared by the doctor and his team.
I still feel repugnant while making a case for designing markets, but that is the entire idea. Just because we feel repugnant about a certain product, it does not mean there is no rationale for developing a market for it.
Ronald Coase discovered that firms exist because pricing mechanisms couldn’t coordinate as there were transaction costs and the firms were best positioned to take care of these costs. Douglass North and others have pointed out that markets worked best if there were proper institutions (the debate on the meaning of proper institutions still continues, though).
The work of George Akerlof brought out the importance of information asymmetry persisting in markets. Behavioural economics questioned the basic assumptions of economics—rationality. Basically, all four said in their own way that markets don’t work as efficiently as classical economics usually espouses.
The “repugnance in markets” argument also makes a strong case for markets not being formed, despite the need for them. The implications are many and extend beyond the human organ market.
Amol Agarwal is an economist with IDBI Gilts Ltd. Comment at email@example.com