A long time ago, I got a request to do a post about whether we should allow payments to kidney donors in order to increase the supply.

My initial reaction was that I didn’t have much to say about this; it just seemed like the kind of obviously good idea that people are nevertheless suspicious of because of a superstitious aversion to certain kinds of transactions. But it’s been on my mind as I’ve done some reading about related questions, and while I wouldn’t say I’ve dramatically changed my opinion, I do think I have a more nuanced understanding of the issue in the form of two somewhat distinct views:

One is that while each individual component of the blocked-transactions universe (kidneys, plasma, blood, etc.) is pretty small, the aggregate is a big deal, primarily because of how these policies limit clinical trials and the development of new cures.
The other is that this is such a big deal that the issue would benefit from a more pragmatic, more moderate, less dogmatic approach on the part of those who favor markets and financial compensation.

In other words, we should treat this the way we should treat any serious policy problem: try to actually fix it by developing politically appealing framings, messages, and policy ideas rather than just pounding the table and complaining about the stupidity of superstitious aversions to markets.

Not that there isn’t a lot of stupidity and very bad arguments out there — even many very smart people suffer from status quo bias and haven’t thought hard about this — but we should be trying to meet people where they are to some extent with options they’re likely to find agreeable.

The bad argument for blocked transactions

Ukraine and Russia happen to be two of the relatively few countries that have robust markets in surrogate pregnancy. Susan Dominus recently did a great piece for The New York Times about the stresses Ukrainian surrogates experience as they face pressure from American clients to flee their home country but don’t necessarily want to leave home or face the legal complications that would arise from giving birth in another jurisdiction.

Part of the issue, as Dominus explains, is that this kind of international paid surrogacy is illegal in most countries.

She explains the concern as hinging on whether the decision to become a paid surrogate is truly voluntary given background conditions of extreme economic inequality (my emphasis):

Even as reproductive technology has advanced, the number of countries that explicitly permit international paid surrogacy has dropped. Opponents of the practice argue that the transactional arrangement commodifies one of the most profound human experiences, the birth of a child. Feminists tend to divide on the ethical issue of surrogacy, with some seeing in the practice a means of financial autonomy, and others perceiving it, especially in less-developed countries, as a kind of reproductive coercion: Could a woman really be said to have choice in deciding to become a surrogate, if doing so was the only way to lift her family out of poverty?
Concerns about trafficking and exploitation led India to pass a law in 2019 that officially shut down what was once, according to a 2012 estimate, a $2.3 billion surrogacy industry. Cambodia, Thailand and Nepal also once served as frequent destinations for foreigners seeking paid surrogates until those countries, too, legally restricted the practice.

You see this kind of rhetoric in a range of contexts related to prohibited transactions, and it really never makes much sense. Ukraine’s main exports are not babies, but agricultural products, especially rapeseed. Raw rapeseed accounts for almost two percent of exports and the oil (usually called canola oil in stores) is over 10 percent. Add in some corn and wheat and you’ve got an agricultural commodity powerhouse.

But people aren’t growing and harvesting all that rapeseed for fun, they’re doing it for money. And is that really voluntary when it’s the only alternative to poverty? I think you might answer no as part of a general critique of capitalism or the injustice of present-day global economic arrangements. But as a policy argument for banning the export of Ukrainian agriculture commodities, it doesn’t make sense.

Thanks to Russia’s blockade of the Port of Odesa, we are actually living through a real-world experiment of “what happens if you sharply limit Ukrainian exports of agricultural commodities?” Well, nothing good happens to Ukrainians, who at the moment are getting by on foreign aid. But it is also leading to surging global food prices, which will be annoying to Americans but potentially catastrophic for residents of lower-income food-importing countries like Egypt. Nobody is helped, everybody is harmed.

Taking the equilibrium effects seriously

Back 15 years or so ago when there were more right-wing economists around, you could get a good argument going on the internet about child labor. Why shouldn’t Americans happily buy t-shirts manufactured by Cambodian twelve-year-olds if sending little kids to work in factories is the best option available to Cambodian families?

In the context of those debates, people would often attempt to run the “coercive nature of poverty” play, and it didn’t make sense for the same reason it never really makes sense.

But in terms of child labor, you can make a pretty good argument that restricting it does have benefits because factory labor crowds out schooling, and it’s important for countries’ medium-term economic development to build an educated population. Development success stories are a careful balance of getting people off farms and into low-wage factory work, but then moving up the industrial value chain by getting more sophisticated kinds of factories that require more skilled workers. You don’t want to get stuck in a sweatshop equilibrium where everyone is illiterate and has been working in an apparel factory since they were little kids. The exact appropriate balance between school and work for older teenagers is plausibly different based on where a country is on the development ladder, but there are very good reasons for trying to push children into school and out of factories.

By the same token, surrogacy is an attractive option for women in poor countries because the “productivity” of pregnant mothers is similar1 in rich and poor countries, so it’s possible for American clients to offer sums of money that are very large in Ukrainian terms and gigantic in Cambodia or Nigeria.

As an economic development strategy, though, there’s no “surrogacy value chain” that a country could move up. It’s a good deal for individual residents of a poor country, but it’s not an economic development strategy. A world in which young women are banking on surrogacy as their path to upward mobility could be bad for national upward mobility.

In this context, the Ukrainian rule that requires surrogates to already be parents seems to me to have benefits. The women portrayed in Dominus’s article are out of school, they have families and jobs, and they have relatively mature and plausible ideas about what they want to do with their money. So Ukraine strikes me as a positive example of legalizing international surrogacy but with some amount of restrictiveness. Other ideas countries might want to consider are a minimum age rule, a low cap on the number of times a person is allowed to serve as a surrogate, and/or a requirement to hit some educational attainment threshold —the idea in all these cases being that you could capture some of the economic benefits of allowing paid surrogacy without turning it into a career in a way that would derail larger development goals. As a nice bonus, of course, you’d be helping more families have kids.

Compensation without markets

In the United States, blood donors are not paid but plasma donors are, which is characterized here as reflecting safety concerns. The theory is that since blood donors are uncompensated, people whose blood would pose health risks have no incentive to lie. This isn’t as big a worry with plasma because of the processing:

Plasma donation — in which blood is drawn, plasma separated out, and then blood cells and other components put back into you — is often compensated. The FDA doesn’t require paid plasma donations to be labeled. The reason is that plasma collected this way never goes straight into another person. It’s broken into many different protein products that will become pharmaceuticals. Along the way, these components are processed to remove or kill any virus stowaways. “The risk of infection is inherently much lower,” said Dr. Christopher Stowell, who recently chaired the FDA’s Blood Products Advisory Committee. Whole red blood cells are too fragile to undergo the same kind of processing as plasma.

Interestingly, in Europe, there are four countries that allow payment to plasma donors — Germany, Austria, Czechia, and Hungary — and they have a different explanation.

Their take is that because plasma donation is more time-consuming than ordinary blood donation and because the appropriate plasma centers are not as conveniently located, it is appropriate to offer people financial compensation for their time. In the official logic of the system, this is not a paid market in plasma. It is a voluntary donation in which the donor receives financial recompense for the lost time and inconvenience.

Seventy percent of the world’s plasma supply comes from the United States, which goes to show that frank marketization really does work to increase supply, but another 20 percent comes from the European Four. No-payment countries account for over 90 percent of the world population but less than 10 percent of global plasma supplies. I think there is probably some reason to fear that Americans’ generosity with plasma donations is related to our relatively threadbare welfare state, and I wouldn’t want to encourage European countries to try to match us in plasma output by eliminating cash benefits and moving to a total market free-for-all in plasma.

But the German solution seems totally fine. As Alvin Roth points out here, the countries that prohibit paying domestic plasma donors tend to buy plasma from American companies that get it by paying American donors, so it’s not even clear what ethical principle they are invoking. Right now plasma companies seem to be enjoying healthy markups on the global market and the demand is robust enough that we have reports of Mexicans crossing the border to donate plasma and then going home. Getting more countries to adopt German-style rules could massively increase global plasma supply. Global demand is rising quickly since it’s apparently very useful for research purposes, but also tons of people in poor countries can’t get plasma treatments because hospitals don’t have an adequate supply. There’s a big potential win here.

Cash for kidneys

There’s a parallel situation in the realm of kidneys.

Having zero functioning kidneys is terrible — needing to go in for regular dialysis is a terrible blow to quality of life and longevity — but having one functioning kidney rather than two is basically fine. The main downside according to Dylan Matthews is that by going from two to one, you slightly increase your chance of ending up with zero. It’s a real, but not very large, risk.

The upshot of this is that harvesting one kidney from a living person and giving it to another person who has zero kidneys generates a large increase in aggregate welfare.

Slow Boring

Solving problems by letting people do things

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