Alvin Roth on the Economics of Morally Contested Markets | Mindscape 353
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Summary
Takeaways
- ❖Economists view markets broadly, including 'matching markets' where participants care who they deal with (e.g., labor, podcast guests), not just 'commodity markets' where goods are interchangeable.
- ❖Markets are human artifacts, designed and regulated by people and institutions, not spontaneous occurrences.
- ❖A 'repugnant transaction' is one some people want to engage in, but others object to morally or religiously, without being personally harmed.
- ❖Market bans require social support to be effective; laws against hiring a hitman work due to strong social disapproval and reporting, unlike drug bans.
- ❖The United States is a major exporter of blood plasma because it allows payment to donors, while many countries ban payment but rely on US imports, highlighting a moral trade-off.
- ❖The current system for organ donation leads to thousands of preventable deaths due to shortages, despite healthy individuals having surplus organs.
- ❖Kidney exchange systems, a form of market design, facilitate life-saving transplants by matching incompatible donor-recipient pairs.
- ❖Paternalism in market regulation (e.g., prescription drugs, financial products) aims to protect vulnerable individuals from choices not in their best interest.
- ❖Policies for morally contested markets should be judged by their consequences, not just their intentions, and experimentation is necessary to find what works.
Insights
1Markets as Human Artifacts Requiring Design and Social Support
Economists, particularly market designers like Roth, view markets not as natural phenomena but as human-built institutions that aggregate private information into collective action. These 'artifacts' are constantly modified by users, companies, and regulators. Their effectiveness, and the effectiveness of bans on them, critically depends on underlying social support and continuous adaptation.
Roth defines markets broadly, including 'matching markets' like labor or public school allocation where prices don't do all the work. He states, 'Markets are human artifacts. They're built by people to serve different purposes... I'm a market designer... how we should design markets and how we should fix them when they're broken.' () He later explains, 'to work well markets need social support. And it turns out that bans on markets also need social support.' ()
2The Discrepancy in Effectiveness of Market Bans: Hitmen vs. Drugs
Despite similar legal prohibitions and severe penalties, the market for hiring a hitman is virtually non-existent, while the market for illegal drugs thrives. This difference highlights that the success of a ban is less about the law itself and more about the social support for enforcement. Strong societal repugnance and willingness to report for contract killing effectively deter it, whereas drug markets persist due to demand and less consistent social enforcement.
Roth poses the question: 'how come it's so easy to buy drugs and so hard to hire a hitman?' () He illustrates that while laws are similar, social response differs: a request for heroin might be ignored, but a request for a hitman would likely be reported to police, leading to intervention. He concludes, 'the same laws that work so well against hitmen aren't working so well against drugs.' ()
3Moral Objections vs. Practical Consequences in Organ and Plasma Markets
Many countries ban payment for organ and plasma donations based on moral objections (e.g., commoditization, exploitation of the poor). However, these bans often lead to severe shortages and reliance on countries (like the US) that permit payment. The economic reality is that allowing regulated compensation can increase supply, save lives, and even provide income for vulnerable populations, forcing a trade-off between moral ideals and practical outcomes.
Roth notes that paying for kidneys is illegal almost everywhere except Iran, despite a severe shortage and millions dying globally. () He contrasts this with plasma: 'it's against the law in many parts of the world to pay plasma donors... But they also say... you can't pay the donors.' () He explains the US exports billions in plasma because it pays donors, and studies show plasma facilities reduce payday loan usage, indicating it helps low-income individuals. ()
4Market Design Solutions for Life-Saving Shortages: Kidney Exchange
In situations like kidney transplantation, where direct donation between loved ones is often impossible due to incompatibility, market design can create solutions. The kidney exchange system, which Roth helped develop, allows incompatible pairs to swap donors, significantly increasing the number of available kidneys and saving lives without resorting to direct payment for organs.
Roth describes the kidney exchange system: 'maybe I can give to your spouse and you can give to my spouse. And that's a kidney exchange.' () He explains how these exchanges, especially those initiated by non-directed donors, 'can spark long chains of donations... and that produces a lot of kidneys.' ()
5Paternalism and the Spectrum of Market Regulation
Societies often employ paternalistic regulations to protect individuals, particularly vulnerable ones, from choices deemed not in their best interest. This ranges from clear cases like child neglect laws to more debated interventions like banning large sodas or requiring prescriptions for drugs. The existence of such regulations demonstrates that markets are rarely 'free' in an absolute sense, and the challenge lies in finding the appropriate level of intervention.
Roth discusses paternalism, noting that 'not all of us are completely good at at deciding things in our own best interest.' () He cites examples like banning giant sodas (Mayor Bloomberg) and prescription drugs, stating, 'we don't think you should decide for yourself whether they're good for you. You should have a prescription from your doctor.' ()
Bottom Line
The relative ease of acquiring illegal drugs versus hiring a hitman, despite similar legal prohibitions, reveals that the efficacy of market bans is fundamentally tied to the level of societal repugnance and willingness to enforce those bans through reporting and social pressure.
Policymakers should recognize that legal bans alone are insufficient for eliminating markets if social support for enforcement is weak. Strategies must consider the social context and public perception to be truly effective.
Develop public awareness campaigns or community-based interventions that increase social repugnance and reporting for specific harmful transactions where current bans are ineffective, rather than solely relying on law enforcement.
The existence of 'fertility tourism' and 'medical aid in dying tourism' demonstrates that when morally contested markets are banned in one jurisdiction but permitted in another, demand doesn't disappear; it merely shifts geographically, creating new challenges for legal and ethical frameworks.
Jurisdictional bans on morally contested services often fail to eliminate the practices, instead creating cross-border arbitrage and forcing legal systems to cope with the consequences (e.g., recognizing parenthood from illegal surrogacy abroad).
International cooperation and harmonization of laws, or at least mutual recognition, could reduce the negative externalities of 'tourism' for contested services, ensuring better oversight and patient safety.
The economic impact of plasma donation, shown to reduce reliance on payday loans, suggests that allowing regulated compensation for certain body products can have direct, positive financial effects on vulnerable populations, challenging purely moral objections based on exploitation.
Arguments against paid donation often cite exploitation, but this evidence suggests that for some, it provides a crucial income supplement that improves their financial stability, making the 'exploitation' argument more nuanced.
Pilot programs that offer regulated, non-coercive compensation for certain donations, coupled with social support and financial literacy, could be explored to address shortages while mitigating risks of exploitation.
Opportunities
Cross-Border Organ Exchange Coordination Platform
Develop a sophisticated, secure, and legally compliant platform to facilitate kidney and other organ exchanges across national borders, addressing bureaucratic obstacles and differing healthcare systems. This would leverage market design principles to connect more donors and recipients globally, similar to the UAE-Israel kidney exchange.
Regulated Compensation Models for Non-Directed Organ Donors
Design and implement a federal or state-level program that provides non-monetary 'valuable consideration' (e.g., income tax credits, lifetime health insurance) to non-directed kidney donors. This aims to increase altruistic donations by offsetting costs and providing recognition, without directly 'selling' organs, and could be expanded to other critical donations.
Ethical Plasma Collection & Distribution Network
Establish a network of plasma collection centers in countries where payment is permitted, ensuring ethical donor recruitment, fair compensation, and high-quality standards. This network would then supply plasma and plasma products to countries with bans on paid donation, ensuring global access to essential pharmaceuticals while respecting local laws.
Key Concepts
Market Design
The deliberate construction and modification of rules, institutions, and platforms to facilitate exchanges and achieve desired outcomes in various markets, often beyond traditional commodity trading.
Repugnant Transactions
Exchanges that some individuals wish to engage in but others object to on moral, ethical, or religious grounds, even if those objecting are not directly harmed by the transaction.
Information Asymmetry
A situation where one party in a transaction has more or better information than the other, which can lead to market failures, exploitation, or the need for regulation.
Consequence-Based Policy
An approach to policy-making that prioritizes the actual outcomes and effects of regulations or market designs over the intentions or moral purity of the policies themselves.
Lessons
- When evaluating policies for morally contested markets, prioritize empirical evidence and the actual consequences of bans or regulations over purely moral intentions.
- For markets experiencing critical shortages (e.g., organ donation), explore market design solutions like exchange systems or carefully regulated compensation models to increase supply and save lives.
- Recognize that 'paternalistic' regulations (like prescription drug requirements or consumer protection laws) are a common and often necessary part of market design, aiming to protect vulnerable individuals and ensure market integrity.
Notable Moments
Sean Carroll's initial framing of markets vs. Alvin Roth's broader definition.
This sets the stage for understanding that markets encompass much more than just commodity exchanges, including complex matching processes where 'who you deal with' matters significantly, which is crucial for understanding morally contested areas.
The 'hitman vs. heroin' analogy to explain the social support required for market bans.
This stark comparison powerfully illustrates that legal prohibition alone is insufficient; the degree of societal consensus and willingness to enforce a ban determines its effectiveness, offering a critical lesson for drug policy.
Discussion of IVF and surrogacy as morally contested markets, highlighting 'fertility tourism' and legal challenges.
These examples demonstrate how bans in one jurisdiction lead to cross-border activities, forcing legal systems to adapt to realities created by differing moral stances and market demand.
Quotes
"Markets are the human institutions, the human artifacts that try to aggregate private information and turn it into collective action."
"Markets are human artifacts. They're built by people to serve different purposes, but to serve their participants. And I'm a market designer... how we should design markets and how we should fix them when they're broken."
"a repugnant transaction is a transaction that some people would like to engage in and other people object to and think shouldn't be engaged in, but not because they're harmed personally, but because they have moral or religious objections."
"to work well markets need social support. And it turns out that bans on markets also need social support. That is we can ban things but that doesn't mean they vanish."
"I think that a lot of moral contests don't deal in trade-offs."
Q&A
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