Organ Donors for Compensation
Today Alexander Berger will donate a kidney:
NYTimes: On Thursday, I will donate one of my kidneys to someone I’ve never met. Most people think this sounds like an over-the-top personal sacrifice. But the procedure is safe and relatively painless. I will spend three days in the hospital and return to work within a month. I am 21, but even for someone decades older, the risk of death during surgery is about 1 in 3,000. My remaining kidney will grow to take up the slack of the one that has been removed, so I’ll be able do everything I can do now. And I’ll have given someone, on average, 10 more years of life, years free of the painful and debilitating burden of dialysis.
Alexander doesn’t want any praise or talk of “heroic sacrifice,” that is part of the problem. He wants to normalize donation and he argues for compensation in a regulated market.
The people waiting for kidneys aren’t dying because of kidney failure; they’re dying because of our failure — without Congress’s misguided effort to ban organ sales, they would have been able to get the kidneys they desperately needed.
…There’s no reason that paying for a kidney should be seen as predatory. Last week, the Ninth Circuit Court of Appeals issued a ruling legalizing compensation for bone marrow donors; we already allow paid plasma, sperm and egg donation, as well as payment for surrogate mothers. Contrary to early fears that paid surrogacy would exploit young, poor minority women, most surrogate mothers are married, middle class and white; the evidence suggests that, far from trying to “cash in,” they take pride in performing a service that brings others great happiness. And we regularly pay people to take socially beneficial but physically dangerous jobs — soldiers, police officers and firefighters all earn a living serving society while risking their lives — without worrying that they are taken advantage of. Compensated kidney donors should be no different.
Here are further MR posts on organ donation and here is Jon Diesel on Do Economists Reach a Conclusion on Organ Donation.
Rewarding Altruism: Blood for Money
Do pecuniary incentives increase blood donation or do extrinsic incentives crowd out intrinsic incentives? In Rewarding Altruism (NBER, free) an important and impressive new paper Nicola Lacetera, Mario Macis and Robert Slonim analyze a field experiment involving some 100,000 donors and find that pecuniary incentives significantly increase blood donations. The field experiment covers a wide geographic area and the donors are tracked for a significant period of time after donating so the authors can look for geographic and temporal spillovers. The authors offered potential donors gift cards of $5, $10 and $15.
Subjects who were offered economic rewards to donate blood were more likely to donate, and more so the higher the value of the rewards. They were also more likely to attract others to donate, spatially alter the location of their donations towards the drives offering rewards, and modify their temporal donation schedule leading to a short-term reduction in donations immediately after the reward offer was removed. Although offering economic incentives, combining all of these effects, positively and significantly increased donations, ignoring individuals who took additional actions beyond donating to get others to donate would have led to an under-estimate of the total effect, whereas ignoring the spatial effect would have led to an over-estimate of the total effect.
Some of the increase in supply came from temporal substitution but this is not without value. Incentives are not just about increasing supply but also about increasing supply at the right time, i.e. when blood is most needed so it’s useful to have a lever that can influence when donations are made.
Crowding out did receive some support in an odd context. The authors found that donors who were surprised with a gift card after they had donated were less likely to donate in the future. Thus, the donors did not reciprocate the unexpected gift and may have felt that their altruistic intention was being undermined. Once again we see the overwhelming importance of context when trying to understand incentives. To paraphrase Mises, an incentive is not an objective fact but a subjective interpretation.
The authors did not find any decline in quality ala Titmuss. Indeed, this is to be expected since modern blood donation is not a random shout-out to people on the street but instead relies predominantly on repeat donors with a long donation history.
Gift cards of $5, $10 and $15 are small incentives and the authors suggest that the benefits from the increased supply far exceed the costs. It’s notable that it takes longer to donate blood plasma and as a result the U.S. blood plasma industry (the “OPEC of blood plasma”) has always relied on paid donors.
Here are my powerpoint slides on Incentives to Increase Organ Donation and here is an older post on sperm exports.
Hayek and Modern Macroeconomics
David Warsh and Paul Krugman try to write Hayek out of the history of macroeconomics. Krugman writes:
Friedrich Hayek is not an important figure in the history of macroeconomics.
These days, you constantly see articles that make it seem as if there was a great debate in the 1930s between Keynes and Hayek, and that this debate has continued through the generations. As Warsh says, nothing like this happened. Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion.
Warsh says much the same thing, adding, I am not making this up, a discussion of Hayek’s divorce. Neither Krugman nor Warsh attempt to argue for their positions, it’s all assertion. Both claim that Hayek is famous only because of the Road to Serfdom.
Let’s instead consider some of the reasons the Nobel committee awarded Hayek the Nobel:
Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929.
It is true that many of Hayek’s specific ideas about business cycles vanished from the mainstream discussion under the Keynesian juggernaut but what Krugman and Warsh miss is that Hayek’s vision of how to think about macroeconomics came back with a vengeance in the 1970s.
David Laidler exaggerated but he was much closer to the truth than Krugman or Warsh when he wrote in 1982 regarding new-classical macroeconomics:
… I prefer the adjective neo-Austrian… In their methodological individualism, their stress on the market mechanism as a device for disseminating information, and their insistence that the business-cycle is the central problem for macroeconomics, Robert E. Lucas Jr., Robert J. Barro, Thomas J. Sargent, and Neil Wallace, who are the most prominent contributors to this body of doctrine, place themselves firmly in the intellectual tradition pioneered by Ludwig von Mises and Friedrich von Hayek.
Thus, Hayek was an important inspiration in the modern program to build macroeconomics on microfoundations. The major connecting figure here is Lucas who cites Hayek in some of his key pieces and who long considered himself a kind of Austrian. (Indeed, to the great consternation of some of my colleagues, I once argued that Lucas was the greatest Austrian economist of the 20th century.)
One can also judge Krugman’s claim that “the Hayek thing is almost entirely about politics rather than economics” by looking at who other Nobel laureates in economics cite. Is Hayek ignored because he is just a political thinker? Not at all, in fact in an interesting exercise David Skarbek finds that Hayek is cited by other Nobel laureates in their Nobel talks more than any other Nobel laureate with the exception of Arrow. (The top six cite-getters are Arrow, Hayek, Samuelson and then tied in citations for fourth place are Friedman, Lucas and Phelps.)
Addendum: Here is Pete Boettke and Russ Roberts and David Henderson.
British STEM
In my book (Amzn, Nook, iTunes) I discuss the stagnation of STEM majors in the United States. According to a new report something similar, although somewhat less pronounced, has been happening in Britain over the last decade:
In fact, overseas students accounted for more than 100 per cent of the increase in student numbers between 1996/97 and 2006/07 in engineering and technology. This means the total number of British engineering and technology students fell during the period.
Tabarrok the Statist
Stephan Kinsella in reviewing Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) for The Libertarian Standard says I am a liberty-hating statist! (Kinsella is upset that I did not come out as a patent abolitionist.) Bryan Caplan, however, says it is a gem that pushed him to extreme patent skepticism. In other mini-reviews, Aretae gives it “three thumbs up” (must be a transhumanist), Robin Hanson thinks I am too rational and Peter Gordon says “Read the book. Spread the word.”
Don’t Check Asian
USA Today: Lanya Olmstead was born in Florida to a mother who immigrated from Taiwan and an American father of Norwegian ancestry. Ethnically, she considers herself half Taiwanese and half Norwegian. But when applying to Harvard, Olmstead checked only one box for her race: white.
“I didn’t want to put ‘Asian’ down,” Olmstead says, “because my mom told me there’s discrimination against Asians in the application process.”
Her Mom is correct:
Asian students have higher average SAT scores than any other group, including whites. A study by Princeton sociologist Thomas Espenshade examined applicants to top colleges from 1997, when the maximum SAT score was 1600 (today it’s 2400). Espenshade found that Asian-Americans needed a 1550 SAT to have an equal chance of getting into an elite college as white students with a 1410 or black students with an 1100.
Note that this is true even though there is a history of discrimination against Asians in the U.S., Asian children also do well on extra-curricular activities and many have poor, immigrant backgrounds.
Comparing schools which can and cannot legally discriminate suggests a lot of discrimination. At Yale the class of 2013 is 15.5 percent Asian-American, at Dartmouth 16.1 percent, at Harvard 19.1 percent, and at Princeton 17.6 percent. These figures are above the Asian share of the population but compare:
The California Institute of Technology, a private school that chooses not to consider race, is about one-third Asian. (Thirteen percent of California residents have Asian heritage.) The University of California-Berkeley, which is forbidden by state law to consider race in admissions, is more than 40 percent Asian — up from about 20 percent before the law was passed.
Interestingly, the Obama administration has recently reversed Bush era rules and interpretations in order to promote race-based admissions:
Bush guidelines: “Before using race, there must be a serious good faith consideration of workable race-neutral alternatives.”
Obama guidelines: “Institutions are not required to implement race-neutral approaches if, in their judgment, the approaches would be unworkable.”
Governor Jerry Brown would also like to repeal or limit CA’s ban on race-based admissions.
Death to the Penny
Excellent.
Seth Roberts on Diversity, Education and Innovation
Wonderful post from Seth Roberts. Not sure if I even agree but Seth makes me think about how I can better serve my students:
People can do great things in dozens of ways, but somehow student work is almost never judged by how beautiful, courageous, practical, good-tasting, astonishing, vivid, funny, moving, comfortable, and so on it is. Because that’s not what professors are good at….To fail to grasp that students can excel in dozens of ways is to seriously shortchange them. To value them at much less than they are worth — and, above all, to fail to help them grow and find their place in the world after college.
At Berkeley, I figured this out in a way that a libertarian should appreciate: I gave my students much more choice. For a term project, I said they could do almost anything so long as it was off-campus and didn’t involve library work. What they chose to do revealed a lot. I began to see not just how different they were from me but how different they were from each other. One of my students chose to give a talk to a high-school class. This was astonishing because she has severe stage fright. Every step was hard. But she did it. “I learned that if I really wanted to, I could conquer my fear,” she wrote.
One of my Tsinghua students recently asked me: “Are you a brave man?” (She wanted to give me a gift of stinky tofu.) I said no. She said she thought I was brave for coming to China. Perhaps. I have never done anything as brave as what my student with stage fright did. I have never done something that terrified me — much less chosen to do such a thing. Her homework hadn’t been very good. When I read about her term project — conquering stage fright — I realized how badly I had misjudged her. How badly I had failed to appreciate her strengths. I saw that it wasn’t just her and it wasn’t just me. By imposing just one narrow way to excel, the whole system badly undervalued almost everyone. Almost everyone had strengths the system ignored. And it’s a system almost everyone must go through to reach a position of power!
…The glorification of IQ has had a solipsistic aspect and has ignored what should be obvious, that diversity of talents and skills promotes innovation. Without a diverse talent pool, any society will do a poor job of solving the problems that inevitably arise.
Hat tip to Bryan Caplan who is less of a romantic than Seth, or I.
Compensation Now Legal for Bone Marrow Donation
Excellent news; yesterday the Ninth U.S. Circuit Court of Appeals issued a unanimous opinion stating that compensation for bone marrow donation, specifically peripheral blood stem cell apheresis, is legal because such donation does not fall under the National Organ Transplant Act (NOTA).
The case was simple and it’s outrageous that the government fought. In brief, a bone marrow donation used to require inserting a very big needle into the donor’s hip bone, a painful hospital-procedure often requiring general anesthesia. Today, however, donors typically do not donate marrow but hematopoietic stem cells which can be harvested directly from blood in a procedure that takes a little longer but is essentially similar to a standard blood donation. Compensation for blood is legal (blood is excluded as an organ under NOTA). The plaintiffs, led by the Institute for Justice, argued and the court agreed that there is no rational basis for outlawing one type of blood donation when a similar donation is legal.
I was shocked by the utter boneheadedness of one of the government’s arguments:
…the government argues that because it is much harder to find a match for patients who need bone marrow transplants than for patients who need blood transfusions, exploitative market forces could be triggered if bone marrow could be bought.
In other words, markets are forbidden just when they are most useful. It was in fact the patients with rare matches who brought this case. As the court noted:
…a physician and medical school professor…says that at least one out of five of his patients dies because no matching bone marrow donor can be found, and many others have complications when scarcity of matching donors compels him to use imperfectly matched donors. One plaintiff is a parent of mixed race children, for whom sufficiently matched donors are especially scarce, because mixed race persons typically have the rarest marrow cell types.
The patients with the most common cell types can afford to rely on the kindness of strangers. You don’t need a lot of kindness when there are a lot of strangers. The patients who are most difficult to match need to leverage altruism with incentive. It’s a lesson with many applications.
Launching the Innovation Renaissance
Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) my new e-book from TED books is now available! How can we increase innovation? I look at patents, prizes, education, immigration, regulation, trade and other levers of innovation policy. Here’s a brief description:
Unemployment, fear, and fitful growth tell us that the economy is stagnating. The recession, however, is just the tip of iceberg. We have deeper problems. Most importantly, the rate of innovation is down. Patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. We have more students in college than ever before, for example, but fewer science majors. Regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Launching the Innovation Renaissance is a fast-paced look at the levers of innovation policy that explains why innovation has slowed and how we can accelerate innovation and build a 21st century economy.
Here is a blurb from Paul Romer (NYU):
Progress comes from improvements in both our technologies and our rules. Alex Tabarrok makes a compelling case that in the United States, our rules on patents, education, and immigration are holding us back. If you want to think clearly about policies that matter for growth, turn off the TV, stop surfing the web, and read this book!
I discuss prizes and education in Launching and so was especially pleased to get this endorsement from Tom Vander Ark, formerly the president of the X PRIZE Foundation and the Executive Director of Education for the Bill & Melinda Gates Foundation and now CEO of Open Education Solutions.
If you’re a fan of MarginalRevolution like I am, you’ll want to read Tabarrok’s latest book. If you’re interested in innovation like I am, you need to read Launching the Innovation Renaissance. Alex poses thought experiments from patents to prizes, from health to education to immigration. He skewers Soviet-style employment bargains and offers insightful alternatives to improve our educational system. Alex is occasionally snarky, often witty, always incisive. Read this on your next flight.
FYI, I began this book before I read a draft of Tyler’s book The Great Stagnation and was interested to see that although we share a few common themes that perhaps due to differences in personality Tyler focuses on describing problems while I am more excited to promote solutions!
CEOs and Marginal Product
I think Tyler is being unnecessarily opaque in his two posts (here and here) on CEO pay and marginal product.
Contra Tyler, it is, of course, perfectly reasonable to compare a CEO with his or her likely replacement. Board of Directors do this all the time. If the Board finds that revenues would be the same with a new CEO the theory doesn’t say that the current CEO should get a zero wage (as Tyler oddly suggests). It says that the current CEO should not be paid more than the wage necessary to hire the replacement. If the current CEO is paid more, he may be out a job. If the current CEO is paid less, he may move.
Tyler argues that CEOs are paid far too little (less than 1% of their marginal product). I say that as a result of the process described above CEOs are paid more or less their marginal product on average. Indeed, according to one astute writer, Gabaix and Landier find that replacing “replacing the No. 250 chief executive with the No. 1 will increase the value of the company by only 0.014 percent.” More or less means that principal agent problems, risk aversion and uncertainty also matter but they matter within a range determined by the usual process. I also believe that the case for some CEOs being overpaid because they choose friendly board members is far stronger than Tyler’s case that CEOs on average are radically underpaid.
Addendum: Tyler’s points about tax incidence are well taken and need not rely on an underpayment argument.
Markets in Everything: 3 Player Chess
Rules and ordering information can be found here.
Small samples mean statistically significant results should usually be ignored
Genomes Unzipped: In October of 1992, genetics researchers published a potentially groundbreaking finding in Nature: a genetic variant in the angiotensin-converting enzyme ACE appeared to modify an individual’s risk of having a heart attack. This finding was notable at the time for the size of the study, which involved a total of over 500 individuals from four cohorts, and the effect size of the identified variant–in a population initially identified as low-risk for heart attack, the variant had an odds ratio of over 3 (with a corresponding p-value less than 0.0001).
Readers familiar with the history of medical association studies will be unsurprised by what happened over the next few years: initial excitement (this same polymorphism was associated with diabetes! And longevity!) was followed by inconclusive replication studies and, ultimately, disappointment. In 2000, 8 years after the initial report, a large study involving over 5,000 cases and controls found absolutely no detectable effect of the ACE polymorphism on heart attack risk.
The ACE story is not unique to the ACE polymorphism or to medical genetics; the problem is common to most fields of empirical science. If the sample size is small then statistically significant results must have big effect sizes. Combine this with a publication bias toward statistically significant results, plenty of opportunities to subset the data in various ways and lots of researchers looking at lots of data and the result is diminishing effects with increasing confidence, as beautifully shown in the figure.
For more see my post explaining Why Most Published Research Findings are False and Andrew Gelman’s paper on the statistical challenges of estimating small effects.
Addendum: Chris Blattman does his part to reduce bias. Will journal editors follow suit?
Doctors with Borders
It’s hard to know what is worse about a new paper in the British Medical Journal, the simplistic economics or the troubling ethics. The paper, The financial cost of doctors emigrating from sub-Saharan Africa, adds up the government-paid cost of educating a health worker in Africa and then multiplies that cost over ~33 years by an investment factor to find the “losses” to the educating country of educating a health worker who emigrates to Canada, the US, the UK, or Australia. The authors do this for nine sub-Saharan African countries with an HIV rate of 5% or greater or more than one million people with HIV/AIDS.
The numbers, by the way, are quite small since the cost of education in developing countries is low and because our laws make it difficult for workers to immigrate, thus the authors find just 567 doctors from Ethiopia currently practicing in the four western countries that they consider; n.b. 567 is the total number not an annual flow. (Note also that the authors gin up the costs by multiplying by an investment factor which adds virtually nothing to the analysis and confuses present and future value calculations.)
You can get an idea of the quality of this paper by asking why the authors chose to focus on countries with high HIV rates. The only reason for this is to suggest that doctors who emigrate and the countries that attract them are responsible for millions of deaths. See below.
Turning to the simplistic economics we have first the suggestion that there is a fixed number (flow) of health care workers so if the U.S. were to forbid Ugandan health care workers from emigrating to the United States this means more health care workers for Uganda. Not so; without the prospect of high wages earned abroad, investment in education (the major cost of which is born by the worker) will likely decline. The Philippines “exports” more nurses than any other country but also has far more nurses than one would expect for a country of its income class, on par with that of Spain, Hungary or Singapore. Here is Michael Clemens:
…there is no such thing as a fixed quantity of nurses to be “drained” from the Philippines or Africa, like petroleum from the ground. People — in this case mostly low-income women — react to global markets and change their career plans accordingly. Many Filipinas wouldn’t have become nurses if not for the migration opportunity, and thus are not ‘lost’ in any sense when they depart. Africans are starting to follow suit, opening career paths for professional women who would otherwise have few. This should not be discouraged through closed immigration policy, but rather taken advantage of — through the establishment of for-export nurse training programs as the Philippines has done en masse. Unlike petroleum, these women are human beings. They have rights and ambitions whose fruition in the United States is a beautiful thing.
Even on their own terms the authors calculations are faulty. Emigrating workers, for example, don’t leave immediately after they have finished their education (as the authors assume in their primary analysis), there are fixed costs to building an education infrastructure which can reduce the costs of education for non-emigrating workers and emigrating workers often send remittances back to the home country. Not all emigrating workers send remittances but wages for high-skill workers can be five or even ten times higher in say the U.S. than in a sub-Saharan African country so educating workers and sending them abroad could be a net benefit for the educating country just based on remittances. Indeed, many families make exactly this calculation. Finally, the authors don’t even try to measure externalities which is what they should be measuring.
What is most ethically troubling is that the authors implicitly treat people as if they were the property of the state. Thus, an emigrating physician is a loss even though the physician improves his life prospects and those of his children. Development is about making people better off not about making geographic units “better off.”
Lest you think that I exaggerate consider that the lead author of this paper is also the lead author of an editorial in the Lancet that advocates making it an international crime to hire African workers.
Although the active recruitment of health workers from developing countries may lack the heinous intent of other crimes covered under international law, the resulting dilapidation of health infrastructure contributes to a measurable and foreseeable public-health crisis….There is no doubt that this situation is a very important violation of the human rights of people in Africa.
…Active recruitment of health workers from African countries is a systematic and widespread problem… the practice should, therefore, be viewed as an international crime.
Yes, you read that correctly: recruiting African workers with prospects of higher wages and a better life is a “very important violation of the human rights of people in Africa.”
Addendum: See this excellent paper by Michael Clemens for more on these issues.
Thanksgiving Lessons
Here from 2004 is my post on the lessons of thanksgiving.
It’s one of the ironies of American history that when the Pilgrims first arrived at Plymouth rock they promptly set about creating a communist society. Of course, they were soon starving to death.
Fortunately, “after much debate of things,” Governor William Bradford ended corn collectivism, decreeing that each family should keep the corn that it produced. In one of the most insightful statements of political economy ever penned, Bradford described the results of the new and old systems.
[Ending corn collectivism] had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression.
The experience that was had in this common course and condition, tried sundry years and that amongst godly and sober men, may well evince the vanity of that conceit of Plato’s and other ancients applauded by some of later times; that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. For the young men, that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. The strong, or man of parts, had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labours and victuals, clothes, etc., with the meaner and younger sort, thought it some indignity and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it. Upon the point all being to have alike, and all to do alike, they thought themselves in the like condition, and one as good as another; and so, if it did not cut off those relations that God hath set amongst men, yet it did at least much diminish and take off the mutual respects that should be preserved amongst them. And would have been worse if they had been men of another condition. Let none object this is men’s corruption, and nothing to the course itself. I answer, seeing all men have this corruption in them, God in His wisdom saw another course fitter for them.
Among Bradford’s many insights it’s amazing that he saw so clearly how collectivism failed not only as an economic system but that even among godly men “it did at least much diminish and take off the mutual respects that should be preserved amongst them.” And it shocks me to my core when he writes that to make the collectivist system work would have required “great tyranny and oppression.” Can you imagine how much pain the twentieth century could have avoided if Bradford’s insights been more widely recognized?
Addendum: Scott Sumner comments.