Welfare Analysis in the US Kidney Market

Introduction

In every market, the forces of demand and supply play a crucial role in shaping the interaction between buyers and sellers. While free market economies are entirely regulated by demand and supply, government interference alters the conditions, leading to market inefficiency. As with every other industry, the market for kidneys in the U.S. is influenced by various determinants, including scarcity and marginal analysis. Scarcity entails a deficiency of products in the market resulting in higher demand than supply.¹ In this case, if kidney donors are fewer than the buyers, scarcity results in an increase in kidney prices, further reducing the ability of needy buyers to afford the organs. Marginal analysis is an essential decision-making tool comparing the costs and benefits accruing from a given product market.² If the costs of selling kidneys are higher than the benefits, supply declines leading to scarcity.

Deadweight Loss and Welfare Analysis

Welfare analysis is a crucial tool in public policy-making as it aids in comprehending the social welfare impacts of established state regulations. Every policy introduces some net effects on the economic conditions, which should be steered towards maximum benefits to the society. Deadweight loss (DWL) is one of the crucial elements worthy of analysis in the market for kidneys in the U.S. Economic inefficiencies resulting from government interference in the markets are best captured by the deadweight loss concept. According to economists, when changes are introduced in the equilibrium curves, demand and supply curves shift, causing a surplus or a shortage of goods.³ For example, if the U.S. government regulates kidney sales through price ceilings, suppliers may decide to withhold their products, causing a severe shortage and, consequently, escalating kidney prices. Due to the rising need for healthy kidneys and the prevalent challenges caused by black markets, understanding the causes and impacts of DWL is vital.

Causes of DWL

Effective utilization of available economic opportunities and the benefits accrued determine how well buyers and sellers engage in the market and the extent to which each meets their needs. The demand for kidneys has been growing daily, making the black organ market a lucrative venture for businesspeople who resort to unfair and illegal sourcing and selling techniques.⁴ These negative consequences warrant a thorough evaluation of DWL causes in an effort to protect the American people from socio-economic strains resulting from government involvement in the human organ markets.

While the U.S. government has not legalized the sale of human organs, its involvement in this market would significantly contribute to deadweight loss. Economists argue that free markets are more efficient and free from equilibrium distortions resulting from government interference, implying that buyers and sellers are free to set their prices to an acceptable level that satisfies both parties.⁵ The main causes of deadweight loss that would be evident in the U.S. kidney market are product deficits, price ceilings, and monopolies.

The balance between supply and demand is desired for efficient market operations. Product deficits are characterized by an insufficient supply of goods at constant or growing demand.⁶ When there are insufficient human kidneys to service the exponentially growing need for healthy organs in the U.S., missed business opportunities arise, which form a significant cause of deadweight loss. Sellers end up having more healthy organs than the customers are willing and able to purchase.

Price ceilings are among the most common government intervention strategies in welfare regulation. As the U.S. government seeks to establish fairness in the kidney market, it may set a maximum allowable price charge for a healthy kidney. Although price ceilings are aimed at protecting consumers from overpricing, it has a net negative impact since sellers may cut off their supply citing minimal gains.⁷ Every seller going into business aims for maximum benefits and minimum costs. Marginal analysis helps the compare expenses and income and decide whether to enhance their participation or limit it. In this case, if the U.S. government imposes price ceilings, kidney sellers would choose to keep their organs while intermediaries sell available kidneys at higher than expected prices aggravating the situation.

In many nations, governments have established state-owned companies as sole manufacturers, processors, and sellers of certain essential products to regulate the market for such goods and services. Monopolies are effective welfare regulation approaches that entail governments giving the sole sellers powers to set market prices, which may go beyond customers’ abilities to purchase⁸. In the U.S., the government can establish a healthcare facility or an organization to source healthy kidneys from willing buyers and sell them to needy customers. This strategy introduces a market inefficiency since donors may be uncomfortable with the idea of not having to decide their selling prices, and buyers may be unable to buy at the set prices, leading to a DWL.

Loss generation in DWL

Loss is the key term in DWL, which encompasses higher expenses than benefits for buyers and sellers in the market. In this case, the loss is generated in two main ways; diminished demand for healthy kidneys and a shortage of kidneys. Currently, black markets for organs are thriving by taking advantage of the high need for kidneys and the availability of individuals willing to sell their organs, despite the U.S. government’s ban on the sale of human organs. Analysts feel that if the government legalizes the sale of human organs, it may save lives by facilitating easy access to vital organs and minimizing risks for sellers.⁹ From this perspective, DWL has economic, social, and political aspects of loss.

On the supplier side, insufficient market contributes to missed opportunities, translating to losses. For example, if, on the one hand, sellers are forced to raise the prices of kidneys due to government regulation, the demand would go down, translating into reduced income. In the human organ market, intermediaries are mostly involved in linking donors to buyers.¹⁰ This implies that as the kidney suppliers buy the organs from willing sellers, they hope to generate a profit, which is severely impacted by the government’s regulation of the trade. If they fail to get the required profits, they end up buying fewer kidneys from donors for supply. In essence, this translates to income loss for donors and suppliers.

On the consumer side, the kidney market is crucial in this century, where many patients are diagnosed with kidney disorders that require a transplant. According to experts in the human organ market, many lives are lost due to the unavailability of healthy human organs for transplant and expensive procedures.¹¹ DWL loss for the buyer results from the high organ prices that prevent them from buying healthy kidneys. In addition to costs, significant health risks are posed by the black market trade. For instance, the kidneys purchased through illegal channels may be prone to a myriad of health issues, worsening the situation for patients. In summary, DWL losses are generated from scarcity and market inefficiencies due to government intervention, leading to significantly higher expenses than benefits for buyers.

DWL Impacts society

DWL poses significant challenges to the socio-economic aspects of a society that cannot be underestimated. First, the variation in demand and supply leads to behavior change for buyers and sellers. As the market falls below the normal optimum equilibrium, the loss of consumer and producer surpluses negatively impacts the economic position of the market and, by extension, influences national economic growth.¹² From a local view, sellers fail to obtain value for their kidneys, and buyers pay more than necessary for needed organs, while at some point failing to acquire kidneys due to high prices. From a global viewpoint, some customers may be forced to look for kidneys outside the borders of their countries, which significantly reduces the country’s GDP. For instance, if a patient needs a kidney transplant but has failed to acquire one locally, they may travel to a different country, enriching their economy through kidney-related purchases, travels, and medical care. Essentially, this implies that the government’s loss of revenue is a significant impact of DWL on society.

In severe cases, DWL may pose some legal and political effects. In the U.S., many traders operate under their unions which advocate for free and fair operations without undue governmental interference.¹³ In some cases, the government may attempt to regulate social welfare by setting a price ceiling below the average seller’s expenses. In other instances, it may use business licensing, permits, and other operational fees that increase the business costs above the buyers’ profit margin. In such cases, traders may use their unions to challenge the government in a court of law and criticize it for politicizing the human organs trade. Legal costs, time wastage, and loss of government credibility in the economic sector represent a key part of DWL’s impact on the government.

Judging from the consequences of government intervention discussed above and the limitations of a free market, there is a need to develop alternative approaches to welfare regulation that effectively address DWL. The first approach, in this case, entails the legalization of the human organ trade. Currently, the U.S. has barred the human organ trade, advocating for donations from willing individuals. However, kidneys have been sold in black markets for many years, posing significant social risks, including human trafficking.¹⁴ Legalizing it would make it easier for patients to acquire healthy kidneys and create a conducive environment for people to sell their organs in an open market.

The second approach entails developing a national body charged with linking organ donors to buyers to eliminate the role of private intermediaries who take advantage of buyer-seller ignorance of eth market and the lack of regulation to benefit themselves. The U.S. government is supposed to facilitate Americans’ well-being, including compensating them for saving the lives of others through kidney donation.¹⁵ Government’s compensation would eliminate the need for overpricing, which would return the market equilibrium to an acceptable level, saving kidney customers and donors from DWL-related effects.

The third method for protecting U.S. citizens from black market effects and DWL comprises the involvement of non-governmental organizations in educating people on the need for legal and fair kidney trade. If NGOs and health organizations follow up on adopted children to establish their health conditions, cases of human trafficking for organ sale will reduce.¹⁶ These organizations could also establish rewards for individuals who report illegal human organ trades and guarantee their safety. This step would keep the public informed of their rights regarding kidney sales and protect many Americans who would otherwise fall victim to human trafficking.

Conclusion

In conclusion, the U.S. kidney market has been faced with numerous challenges arising from non-regulation and black market operations. Government regulation through price ceilings and monopolies would effectively mitigate free-market challenges, introducing a conducive environment for kidney donor-buyers interactions. However, government interference influences the equilibrium market conditions, causing shifts in the demand and supply curves. A marginal analysis reveals that if operating costs outweigh the economic gains, many sellers will withhold their organs, causing scarcity and, consequently, translating to DWL.

Bibliography

Chiang, Eric. Macroeconomics: Principles for a Changing World. Worth Publishers, 2022.

Franks, Dorothy. “The Rumor on Adopting Children for Their Organs: A Compelling Reason to Address a Thriving Organ Black Market and the Prevalence of Children Being Trafficked into Adoption.” Journal of Health & Biomedical Law 14 (2018): 169.

Houser, Kristin. “Black Market Bodies: How Legalizing the Sale of Human Organs Could Save Lives.” Neoscope. 2017.

Pearl, Robert. “Should The U.S. Government Pay People For Their Kidneys?” Forbes Magazine, 2019.

Footnotes

1. Eric, Chiang. Macroeconomics: Principles for a Changing World. Worth Publishers, 2022.
2. Eric, Chiang. Macroeconomics: Principles for a Changing World.
3. Eric, Chiang. Macroeconomics.
4. Dorothy, Franks. “The Rumor on Adopting Children for Their Organs: A Compelling Reason to Address a Thriving Organ Black Market and the Prevalence of Children Being Trafficked into Adoption.” Journal of Health & Biomedical Law. 14 (2018): 169.
5. Eric, Chiang. Macroeconomics.
6. Ibid.
7. Ibid.
8. Ibid.
9. Kristin, Houser. “Black Market Bodies: How Legalizing the Sale of Human Organs Could Save Lives.” Neoscope. 2017.
10. Dorothy, Franks. “The Rumor on Adopting Children for Their Organs: A Compelling Reason to Address a Thriving Organ Black Market and the Prevalence of Children Being Trafficked into Adoption.”
11. Kristin, Houser. “Black Market Bodies: How Legalizing the Sale of Human Organs Could Save Lives.”
12. Ibid.
13. Ibid.
14. Dorothy, Franks.
15. Robert, Pearl. “Should the US Government Pay People for Their Kidneys?” Forbes Magazine, 2019.
16. Kristin, Houser.