A large number of patients who suffer from degenerative kidney disease ultimately require a new kidney in order to survive. Healthy individuals have two kidneys but usually can live a normal life with just a single kidney. Thus, kidneys lend themselves to “live donations” —i.e. unlike an organ like the heart, the donor can donate the organ while alive (and live a healthy life with a high degree of likelihood). It is generally not permitted for healthy individuals to sell a kidney — kidney’s can only be donated for free (with only the medical cost of the kidney transplant covered by the recipient or his insurance). In effect, this amounts to a price ceiling of zero for kidneys in the market for kidneys.
A. Consider, then, the supply and demand for kidneys.
(a) Illustrate the demand and supply curves in a graph with kidneys on the horizontal axis and the price of kidneys on the vertical. Given that there are some that in fact donate a kidney for free, make sure your graph reflects this.
(b) Illustrate how the prohibition of kidney sales results in a “shortage” of kidneys.
(c) In what sense would permitting the sale of kidneys eliminate this shortage? Does this imply that no one would die from degenerative kidney disease?
(d) Suppose everyone has the same tastes but people differ in terms of their ability to generate income. What would this imply about how individuals of different income levels line up along the kidney supply curve in your graph? What does it imply in terms of who will sell kidneys?
(e) How would patients who need a kidney line up along the demand curve relative to their income? Who would not get kidneys in equilibrium?
(f) Illustrate in your graph the lowest that deadweight loss from prohibiting kidney sales might be assuming that demand curves can be used to approximate marginal willingness to pay. (Hint: The lowest possible deadweight loss occurs if those who receive donated kidneys under the price ceiling are also those that are willing to pay the most.)
(g) Does the fact that kidneys might be primarily sold by the poor (and disproportionately bought by well-off patients) change anything about our conclusion that imposing a price ceiling of zero in the kidney market is inefficient?
(h) In the absence of ethical considerations that we are not modeling, should anyone object to a change in policy that permits kidney sales? Why do you think that opposition to kidney sales is so wide-spread?
(i) Some people might be willing to sell organs— like their heart — that they cannot live without in order to provide financially for loved ones even if it means that the seller will die as a result. Assuming that everyone is purely rational; would our analysis of deadweight loss from prohibiting such sales be any different? I think opposition to permitting such trade of vital organs is essentially universal. Might the reason for this also, in a less extreme way, be part of the reason we generally prohibit trade in kidneys?
B. Suppose the supply curve in the kidney market is p = B +βx.
(a)What would have to be true in order for the phenomenon of kidney donations (at zero price) to emerge?
(b) Would those who donate kidneys get positive surplus? How would you measure this — and how can you make intuitive sense of it?