Thursday, July 14, 2016

Would you give your kidney to Alex Tabarrok or Scott Sumner?

I recently retweeted two posts about kidneys...






Scott Sumner and Alex Tabarrok are economists who both perceive the need for kidney markets.  But, there's more than one way to allocate kidneys.

Let's pretend that Sumner and Tabarrok both needed a kidney.  Coincidentally, I happen to have an extra kidney.  Which economist should I give my kidney to?

According to basic economics, I should try and get the most bang for my buck.  In more economic terms... resources should be efficiently allocated.  Would an auction accomplish this?  An auctioneer would point in the general direction of my extra kidney and extol its virtues.  Tabarrok and Sumner would engage in a fierce bidding war and my extra kidney would be sold to the highest bidder.  This auction system is a pretty straightforward method for determining which economist is willing to pay the most money for my extra kidney.

Let's say that Tabarrok was the highest bidder.  So, as a result, I would give him my kidney.  But would this be the most efficient allocation of my kidney?

As the saying goes, no man is an island.  In reality, Tabarrok wouldn't be the only person to benefit from my kidney.   His family, friends, coworkers, students and random people would also benefit from my kidney.  This is because lots of people benefit from Tabarrok's existence.  However, in the auction scenario... their benefit didn't factor into the allocation decision.   It stands to reason that the efficient allocation of my kidney depends on total benefit.  So how would we measure total benefit?

Let's imagine a website.  I could post my dilemma...

Who should I give my kidney to?

1. Scott Sumner
2. Alex Tabarrok

Anybody and everybody would be able to join the website and help answer the question.  How, exactly, would people help answer the question?  By voting?  Voting would help determine the most popular answer.  But is the most popular answer necessarily the most efficient/valuable answer?  Nope.  In order to determine the most efficient answer... people would need to spend their money on their preferred answer.

voting = popularity
spending = value

In the auction scenario... we determined Sumner's maximum willingness to pay (WTP) but did we determine Tabarrok's max WTP?  Probably not.  Tabarrok won the kidney because he was willing to spend more money than Sumner.  But there was no incentive for Tabarrok to reveal his max WTP.  How about with the crowdfunding scenario?

With the crowdfunding scenario... we can guess that Sumner would probably spend the same amount as he was willing to spend in the auction scenario.  But perhaps Tabarrok would be willing to spend more than he spent in the auction?  He wouldn't just be trying to outspend Sumner... he would be trying to outspend everybody who was willing to spend money on Sumner receiving the kidney.  So we would expect a bit more "honesty" from Tabarrok... which equates to more efficiency.  The amount of money raised for both economists via crowdfunding would definitely be more than the amount of money that the economists would be willing to spend during auction.  This is because the money raised from crowdfunding would reflect total benefit.  However, because of the free-rider problem... total funding wouldn't perfectly reflect total benefit.  But the crowdfunding would more accurately reflect total benefit than the auction system.  This is why the answer determined by crowdfunding would be more efficient than the answer determined by auction.

Of course in reality, Tabarrok and Sumner wouldn't be the only people in the world who needed a kidney.  So how could we ensure the most efficient allocation of my kidney?  It would be necessary to see the total benefit associated with all the parties that were interested in my kidney.

It's easy to jump to the conclusion that a crowdfunding system would obviously benefit the wealthiest individuals.   But a crowdfunding system would benefit the most valuable individuals... and I'm not sure if it's always the case that the wealthiest people are the most valuable people.  It's a given that Tabarrok and Sumner are not equally wealthy.  If Tabarrok was wealthier than Sumner...then I don't think that this would necessarily guarantee that Tabarrok was more valuable than Sumner.  Personally, Tabarrok is my favorite living economist.  So I'd be willing to chip in a lot more money to help him receive a kidney.   How much would I be willing to chip in?  It's hard to predict what my willingness to pay would truly be.

Right now we can see and measure wealth, more or less,... but people's value to society is largely unseen.  Right now we don't really know whether Tabarrok or Sumner is more valuable to society.  Their value to society would be revealed if their continued existence depended on society's willingness to pay.

In his blog entry Tabarrok wrote... "I'm not expecting a market in kidneys anytime soon...".  But would the crowdfunding approach be technically a market?  I wouldn't be technically selling my kidney to the most valuable individual... I would be giving it to him.  Of course I would receive money for my decision to donate my kidney to the most valuable individual.  And perhaps markets can be thought of as buying decisions... but I'm not sure if they are technically defined as such.

Tabarrok isn't expecting a kidney market anytime soon because it's currently illegal to sell/buy kidneys.  And who knows how long it would take the law to change.  But does the law cover crowdfunding the decision to donate your kidney?  I'd be surprised if the law was that specific.  Out of curiosity I dug up the law (National Organ Transplant Act of 1984)...

TITLE 111-PROHIBITION OF ORGAN PURCHASES
SEC. 301. (a) It shall be unlawful for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce.
(b) Any person who violates subsection (a) shall be fined not more than $50,000 or imprisoned not more than five years, or both.
(c) For purposes of subsection (a): (1) The term "human organ" means the human kidney, liver, heart, lung, pancreas, bone marrow, cornea, eye, bone, and skin,and any other human organ specified by the Secretary of Health and Human Services by regulation.
(2) The term "valuable consideration" does not include the reasonable payments associated with the removal, transportation, implantation, processing, preservation, quality control, and storage of a human organ or the expenses of travel, housing, and lost wages incurred by the donor of a human organ in connection with the donation of the organ.
(3) The term "interstate commerce" has the meaning prescribed for it by section 20103) of the Federal Food, Drug and Cosmetic Act. 

The law specifies what "valuable consideration" doesn't cover... but it doesn't specify what it does cover.

We know that it's illegal to buy/sell kidneys... and we know that it's legal to donate kidneys... but what about crowdfunding the decision to donate kidneys?   Let's say that 5,000 people were willing to contribute to help Elizabeth Warren receive a kidney.  Would the kidney donor be prosecuted?  Would Warren be prosecuted?  Would the 5,000 contributors be prosecuted?

What if crowdfunding occurred after the fact?  You donated your kidney to Warren and posted proof on a crowdfunding website.  Anybody who benefited from your decision to donate your kidney to Warren could give you money for doing so.  If you can donate something of value (your kidney) to Warren because you value her leadership... why can't people donate something of value (their money) to you because they value your donation?

Here's a thread I recently created about the idea of crowdfunding decisions...

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When I quickly search google for crowdfunding decisions I don't see any results that are relevant to what I have in mind. Figured that I'd share what I have in mind with you folks. We can discuss the concept and perhaps some of you might be able to dig up some relevant results.

What I have in mind is basically a website where you could post your real-life situations along with some possible courses of action (COAs). People could spend their money on the COA that they want you to take. You would choose a COA and receive the money that was spent on it. The people who spent their money on the other COAs would receive a refund.

Let's consider an example. Bob is a high-school student trying to decide what to do with his life. He'd like some substantial guidance so he goes on the website and posts an entry with lots of details about his situation. He lists some possible COAs...

1. Go to college
2. Go backpacking in Europe
3. Join the military

His family, friends and random strangers spend as much money as they want on the different COAs...

1. Go to college: $456
2. Go backpacking in Europe: $100
3. Join the military: $1000

Bob decides to go to college so he receives the $456 dollars. The people who spent their money on the other two COAs would receive a refund.

People could post any type of situations they wanted... ranging from frivolous (how short should I cut my hair?) to serious (should I get an abortion?).

Yes, I know, there are a gazillion potential problems with this concept. Maybe the most obvious and biggest potential problem is that there's no way to guarantee that the poster actually follows through. Bob could simply choose the most valuable COA (join the military), receive the $1000 dollars... but then go backpacking instead. Off the top of my head, one possible deterrent would be some sort of rating and/or verification system. On Bob's profile it would say something like, "Bob follows through 99.7% of the time". Of course, given that everybody would understand that follow through couldn't be guaranteed... this would influence their willingness to pay (WTP).

Another potential issue is whether the crowd should be able to suggest other possible COAs. And whether or not funders can be anonymous. And whether or not funders can switch their funding to a different COA.

Even though there are lots of potential problems... I find the idea really intriguing. The general concept really isn't new though...

Where no counsel is, the people fall: but in the multitude of counsellors there is safety. - Proverbs 11:14

When I was growing up my mother often quoted this proverb to me. It must have worked because... voila! Here I am!

The part of this idea that's relatively new is the crowdfunding part. It's one thing to go around asking a bunch of people whether you should join the military. It's another thing to ask people to put their money where their counsel is. Your uncle says that you should really join the military. But then he's only willing to spend $5 dollars on this potential COA. Do you believe his words or his actions?

Coincidentally, I had this idea when I encouraged Lucas Dailey to join Nation States.

Can you imagine yourself asking the crowd to show you the intensity of their preferences for your potential COAs? Can you imagine spending your money to try and help incentivize friends, family, coworkers and strangers to choose a certain COA? Is this song... Should I Stay Or Should I Go... the most relevant song? Is this flash animation... Crying... the most relevant flash animation?

I'd be surprised if the idea of crowdfunding decisions hasn't already been thought of and written about elsewhere. So please let me know if you manage to find some relevant search results.

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Ok, so here are my questions for Tabarrok, Sumner and anybody else interested in the general concept...

1. Would crowdfunding the decision to donate kidneys result in a more efficient allocation of kidneys compared to buying/selling kidneys?
2.  Would crowdfunding the decision to donate kidneys be considered illegal?

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