Alvin E. Roth (2014) - Repugnant Markets and Prohibited Transactions

I’m delighted to be here. And I’m going to talk to you today about a subject that I think might potentially be of interest to economists of very different interests. Which is why I chose this topic. But it’s a topic we know very little about. So I’m not going to tell you any answers today. I’m just going to raise questions. I’m going to talk about which kinds of markets we support and allow to exist. And which kinds of transactions we often don’t want to see. And so my talk is a little bit like the old joke about economics and sociology. Which says that economics studies what choice we make. And sociology studies why we don’t have any choices. So I want to talk about which markets exist. Which transactions we allow and can choose among. I’m a market designer. And one of the things you encounter as you start talking about market design is that some transactions are repugnant. Some people would like to engage in them but other people think that they shouldn’t. And I became interested in this because some of my work touches on kidney transplantation. And there’s a shortage of organs around the world. But buying and selling organs for transplant is illegal almost everywhere. It’s illegal everywhere except the Islamic Republic of Iran, where there is a market in live donor kidneys. As social scientist, when we see something that’s against the law everywhere, we ought to think of that as something worth studying. Why is it that there are transactions that people might like to engage in? I assure you, there are illegal markets. But that society doesn’t think that they should. Here is a little bit of the American law that forbids buying and selling of kidneys. It’s the National Organ Transplant Act. And it says, "It shall be unlawful for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration." And it's not just the Americans. There are individual European laws, but here’s a statement from the Council of Europe in 2002: This is a contemporary thing, from this summer: Here’s a new statement from the Council of Europe saying that "the total ban on trading human organs must continue." But making markets illegal doesn’t make them go away. Just this week in the New York Times, on the front page, was a story about kidneys for sale, illegal markets for kidneys. Kidney disease is a deadly disease so there are people who’d like to buy kidneys. And you each have 2 kidneys. So if you’re as healthy as I hope you are, you could give a kidney or sell one to someone and save their lives. But it’s against the law. So here we are. We have a worldwide shortage of organs. In the United States we have 100,000 people waiting for a deceased donor organ. And the figures are similar elsewhere. There are only about 10% of people who need kidney transplants around the world can get them. And it’s a deadly disease. So as economists when we see a long queue, 100,000 people waiting in the United States, we wonder if maybe the prices aren’t adjusting properly, right? If you see a lot of people waiting in front of the butcher, you wonder maybe there are price controls or something like that. And, indeed, the price of kidneys by law almost everywhere, everywhere except Iran, must be zero. Because kidneys can only be given as gifts - other organs as well - but kidneys, because you have 2 you can give one. So the question of live donation arises. The question I want to ask today, and I’m not going to answer it, is: And it’s not just kidneys - this is a broader question. And I think it’s one that has had big economic impact throughout the history of the world, and I’ll tell you a bit about this. And it’s one that economists should think about, because markets are what people do. Markets are like language. They are things that people have designed for as long as there have been people. But we impose limits on markets. And I think we should try to understand what these are. So let’s call a transaction repugnant, if some people want to engage in it and other people don’t want them to. So the fact that kidney sales are illegal almost everywhere, allows me to say that selling kidneys is repugnant. There are lots of repugnant transactions. Let me flash some before your eyes just to get away from kidneys for the moment. So there are UN conventions about prohibiting and preventing the illicit import of cultural property. And the picture is of a museum that’s been destroyed in Aleppo. But the repugnant transaction here is not just for stolen property. We regard some kinds of property as part of the national patrimony of the place where they originated. And we think that they shouldn’t be bought and sold elsewhere. Narcotic drugs are, of course, a good example of repugnant transactions. There are people who want to buy them and there are people who want to sell them. But we don’t think they should. There is a convention on international trade in endangered species. We don’t think that people should buy and sell elephant ivory, for example. Although for a long time piano keys were made of elephant ivory. But here’s a picture from the Philippines where they’re destroying seized elephant tusks. Notice that if your goal is to protect elephants, you could at least contemplate other strategies than destroying illegally obtained elephant tusks. You could imagine flooding the market so that ivory would be very cheap. And that it wouldn’t be worthwhile to kill elephants. But I think the public destruction is a sign of the repugnance of the transaction. That is the Philippine authorities here are trying to indicate that this is something they really disapprove of in a deep way. You shouldn’t buy and sell elephant ivory. So there have been some important repugnant transactions and let’s think about them. Because there are lots of transactions that in some times and places have been repugnant. And they change over time. And that’s one of the interesting and puzzling things about repugnant transactions. So a good place to look for repugnant transactions of course is sex, right? People like to have sex with each other and we often think they shouldn’t. And a transaction that’s been changing in its status in repugnance around the world, in the United States and elsewhere, is same-sex marriage. So I think of same-sex marriage as a prototypical repugnant transaction. That is it’s a transaction between 2 people who want to engage in it. And it’s often been illegal which is to say other people don’t want them to do it. That’s been changing over time. I’ll talk a little more about that. Things go both ways, though. I come from a country where we used to sell slaves and where it was a common way to get across the Atlantic Ocean to buy a passage for 5 years of involuntary servitude, indentured servitude. Well, we don’t do that anymore. That wasn’t so repugnant and it’s now repugnant. Whereas same-sex marriage used to be repugnant and is becoming less repugnant. Lots of questions about worship. You know, there are wars going on in Syria and Iraq and elsewhere now that have to do with how people practice their religions. Interest on loans of course is a big subject of importance in economics. We could hardly have the capitalist economy that we have today around the world if we didn’t have a market for capital. But in the middles ages in Europe charging interest on loans was something that the church thought that you shouldn’t do. You shouldn’t make money from your money. So notice that the arrow of time points both ways. It’s not that as we get all modern, ancient repugnances fall away. There are some things that used to be repugnant and are not today. But there are some things like involuntary servitude that used to not be so repugnant that are repugnant today. And when they change, they can change fast. So in the United States there are now 20 States that have legal same-sex marriage. There’s another 20 or so States that have passed State constitutional amendments forbidding same-sex marriage. So this is an issue that divides Americans today, whether people who want to marry each other should be allowed to, even if they are of the same sex. But all this happened in the last 10 years. The State of Massachusetts allowed same-sex marriage in 2004, 10 years ago today. Ancient repugnances can change fast. This is something that if we’re going to understand it, we have to understand not just what is repugnant and what isn’t, and how does that get set up, but how does it change. There are, as I said, changes over time in both directions. Lending money for interest is an interesting one. Because, of course, for a long time it was regarded as not such a good thing to do. So Albert Hirschman paraphrases Max Weber, saying, "How did commercial banking and similar money-making pursuits become honourable at some point in the modern age after having stood condemned or despised in the past as greed or avarice." And if you happen to be wandering around the basement of the Harvard Business School ever, you’ll come on this mural, which turns out not to be about same-sex marriage. It’s about credit. (Laughter) And what it says is, it’s a speech from Daniel Webster to the Senate of the United States in the 1800s. And he was trying to explain that charging interest for money was a good thing. He says, "Commercial credit is the creation of modern times. It’s a market design creation, belongs to the most enlightened and best-governed nations. Credit is the vital air of the system of modern commerce. It has done more to enrich nations than all the mines in the world." So he was speaking at a time when people still wondered whether borrowing money was a good thing. And he was encouraging them that the banking industry was a respectable industry. So again, slavery as an indentured servitude is something that we’ve changed our minds about over time in the United States. That used to be the most common way to get across the ocean. You’d be sitting in England or Ireland and you’d want to come to Boston and you didn’t have the fare. And the ship captain would say to you not a problem, sign these articles of indenture. And when we get to Boston harbour I will auction your unconditional labour services for 5 years to the highest bidder. And that was a common labour contract. The 13th amendment to the constitution says we don’t do that anymore. There are a lot of repugnant transactions, since I was talking about kidneys, there are a lot of repugnant transactions that have to do with bodies, with ourselves. If you look at volume 1 of the Lancet, the famous British medical journal. There was always a problem of getting bodies for anatomy classes, so that you could train doctors. And they used to get bodies from grave robbers. Because the only legal bodies they could use in anatomy classes were those of convicted murderers. One of the first editorials in the Lancet talks about a convicted grave robber - they were called resurrection men, because they resurrected the dead - who was a reliable supplier of bodies to British medical schools. But he has been arrested and sentenced to transportation to Australia. And the editorial says, what are we going to do now? Where are we going to get the bodies we need for anatomy classes? Of course, that’s changed a great deal over time. And today you can see museum exhibits - I think these are produced in Germany, actually - in which dead bodies are displayed. And that’s something you might feel happy about or not. But the public notion of what’s a repugnant use of cadavers has changed over time. Reproduction is another big source, like sex, of repugnant transactions. So the technology of reproduction has now progressed to the point where you can purchase the whole supply chain of a baby. You can buy the sperm and the egg and the surrogate womb. And in some jurisdictions you can have your name on the birth certificate as the parent, having contracted for this. Now, not everywhere - in, let’s see, in California you can pay surrogates but not in New York. In Germany, here in Germany, surrogacy is illegal - not just the payment, but the act: in connection with surrogacy are punishable offences" in Germany. That has the consequence that when German aspiring parents cause a surrogate child to be born in India, that child may not be recognised as a German citizen. So these are things that are different in different places. If you have a surrogate child in California your name can be on the birth certificate. But not if you’re a German. So there are pretty complicated cases. There’s lots going on here. They are important but they’re complicated, so they’re hard to understand. So now let me go from the important and complicated to the simple and more trivial. But to focus on the issue of repugnance. It turns out you can’t eat horse meat in California. I guess you probably can in Germany, I don’t know how many of you have. But you can’t eat horse meat in California because it’s against the law. It’s not an ancient cowboy law when a horse was a man’s best friend. It’s a 1998 referendum. We have referenda in California. Citizens can petition to have laws put on the ballot and we vote for them directly. And this law was passed by popular referendum in 1998. You can do other things with a dead horse but you can’t offer it for sale. This is not, of course, done everywhere. When you search for horse meat on the internet you get 2 kinds of sites. Some of them tell you why you shouldn’t eat horses and some of them tell you how delicious horses are. And they both use the same kind of pictures. They say, "See how beautiful they are!" So repugnance is not universal. It’s not that we all find the same transactions repugnant. Let’s talk about dwarf tossing. This is a sport in which Lenny the Giant, the man wearing the helmet, earns his living. And he is a small athlete who can fall gracefully and not hurt himself. And he earns his living by allowing larger and sometimes drunker men to try to throw him for distance. Here is the Ontario dwarf tossing ban act of 2003. So this is a legal transaction in England but not in Canada. And notice it’s not an occupational-health-and-safety kind of law. It doesn’t say, Lenny the giant has to wear a helmet. Lenny the giant is wearing a helmet. It says yuck, it says, don’t do it. No person shall organise a dwarf-tossing event or engage in dwarf tossing. So it turns out a French dwarf, when French laws were passed against dwarf tossing, took his case to the UN High Commission on Human Rights saying that his right of employment had been violated. It's a legal case, it’s a court. So France had a set of legal documents saying they had passed these laws against dwarf tossing because it was undignified. And for reasons of public order they had to pass a law against it. And the dwarf had I thought a very moving statement. He said, you know, there aren’t a lot of jobs for dwarfs in France. And the essence of human dignity is having a job. And this is my job, he said. So, he said, his right to employment was being violated. But the UN found for France. And basically what they said is that human dignity is a public good. And that when he earns his living in this way he was making all of us a little less human, was the view of the UN committee. So this is a complicated thing, right? So there are laws against dwarf tossing in France and Canada, not in England, and in some American States. But it can be very hard to predict - it’s very hard for me. I’m not going to offer you a model that says, I’m going to tell you what transactions are repugnant and what are not. Because it’s very hard to tell. Think about other sports. It’s not that dwarfs are small. We like horse racing and jockeys are small. The man who rides a horse to victory in a horse race is a small man. So that’s not the issue. And there are other sports that look to me a lot like dwarf tossing but are not illegal anywhere. These people are not married to each other, they’re athletic teams. The sport is called wife carrying. These days most of the world champions use what's called the Estonian position. It’s not very dignified when they’re going through the water courses. But for whatever reason we don’t find wife carrying repugnant, but, in many jurisdictions, dwarf tossing is. I think it’s hard to make a model that says why one thing is and one isn’t. Or why it’s repugnant to eat horse meat in California but not in Germany. But one thing you can say is that sometimes something isn’t repugnant by itself, but it becomes repugnant when you add money. So there are things that aren’t repugnant until you try to pay for them. The medieval church didn’t mind loans, it minded interest on loans. They didn’t think you should make money from your money. Adoption is very expensive. But you can’t pay the birth mother for the baby. You can’t buy a baby from the birth mother. European laws and American laws are very different about prostitution. But, by and large, these days it’s not promiscuity that we object to but the commercial aspect of prostitution. And, of course, in the United States right now we’re just going through some changes in what we regard as legitimate payments for college athletes for example. College athletics is a very big business in the United States, but there’s been a long tradition that they’re amateurs and shouldn’t be paid. Many people can identify who is the economist in this cartoon. Here is this poor guy coming to dinner. And he’s offering his host some money. And he says, "We didn’t have time to pick up a bottle of wine. But this is what we would have spent." The reason that’s a funny cartoon is we all recognise that there are some transactions for which money would be inappropriate. If you invite me to dinner at your house there are a lot of ways I can show my gratitude. I can bring an expensive bottle of wine. I can invite you to dinner at our house. If we’re in Germany and I’m not at home, I could even say to you, That approaches a commercial transaction. But it’s very different than after dinner saying, You would never invite me back. You’d think, "What’s the matter with this guy? Doesn’t he understand that we’re not a restaurant? We don’t offer dinners for money and you pay your bill and your obligation is extinguished. Being invited to dinner at our house is an offer of friendship. And you have to respond to it in a way that shows that you understand that you can be a friend." So even economists understand that not every transaction can be settled with money. And, of course, it’s not just the presence of money - sometimes it’s the amount. In the United States, we have laws against price gouging. Sometimes prices can be too high. And we have laws against prices being too low. We have international trade agreements that talk about dumping. So there are transactions that are not obviously wrong, but that we try to regulate by the appropriateness of the price. We don’t think the price should freely adjust. And when you talk about 'why are there laws against selling kidneys'. There seem to be 3 principle arguments that you hear about why you shouldn’t be able to buy and sell kidneys. One is objectification or sometimes called commodification. It says, people are different somehow in an important way. So various popes of the Catholic Church have made arguments of this sort, saying that people should always be ends and never means. And somehow buying organs crosses that line. There’s also an argument about coercion or exploitation. And these are sometimes the hardest for economists to understand. But the argument says that you might be taking advantage of desperate people. They might be doing things, against their better judgment, for the money. Now, of course, that’s why it’s hard for economists to understand. Many of us do things for the money, like teach economics or the other ways we earn our living, without thinking of that as exploitation. But it’s something to think about. It’s an argument made very widely about many of these things. And the third line of argument, I’m not going to go into these today, is that it might be a slippery slope. Maybe it would be ok to sell kidneys in a carefully regulated market. But it might start to lead us to live in a less sympathetic society than we would like to live in. It might institute other changes. For example, when you want to buy a house, you might be asked, to get the best rate, to check the box that says: if you can’t pay your mortgage we don’t just have the right to foreclose on your house; maybe we could take a kidney instead. So that might expose you to risks that you don’t want to be exposed to. And are glad to be forbidden from exposing yourself in a prisoner’s dilemma sort of way. That prisoners would be better if they weren’t allowed to confess. So it’s something to study. I’ve been studying it again recently. I started studying it in a 2007 paper. And one question as a market designer is: What can you do if, say, there’s a big shortage of organs but almost universally laws against buying and selling them? And the late Garry Becker, who passed away just in the last weeks, was a big advocate of trying to change the laws. Of trying to explain to people that voluntary transactions between well-informed, consenting adults are welfare enhancing. But when you see that there’s a law against it everywhere, you understand that even if you think that’s the right answer, it might be difficult to do. There’s something there that we don’t understand. In my work as a market designer, one of the things that I’ve done is try to increase access to transplantation without having to change the law. And because you each have 2 kidneys you can give a kidney to someone. But sometimes you’re healthy enough to give a kidney to someone you love. But you can’t give them your kidney because it’s not a good match for them. And this is what opens up the possibility of exchange. And so a kidney exchange is an exchange that is an in-kind exchange. It’s like bringing wine to dinner instead of bringing money to dinner. Here’s a simple kind of exchange where donor 1 has blood type A and would like to give to recipient 1 but can’t. And donor 2 is blood type B and is incompatible with recipient 2. But the blood type A kidney can go into the patient who needs a blood type A kidney. And the B kidney can go into the B patient. That’s a kidney exchange. That’s a way of getting 2 people transplants that they couldn’t otherwise have gotten. Now, let me remind you of the American law. It says it’s unlawful for any person - it doesn’t just say to buy or sell a kidney, it says: to give valuable consideration. So you can look at that - we started doing kidney exchanges in 2004. You can look at that and say maybe it violates American law. And the Justice Department thought that it might. But we got an amendment to the law which says that the preceding sentence doesn’t apply to kidney exchange. And this law passed without dissent. It took 3 years, but it passed the American Congress and Senate with no 'no' votes. So the same law making body that thinks that you shouldn’t buy or sell kidneys had nothing against kidney exchange. That’s not always the case. Here in Germany kidney exchange is illegal. And it’s illegal through the same kind of law, but more rigorously enforced in Germany. So in Germany you’ve got an organ act that says, you can only give a kidney to relatives of the first or second degree: spouses and domestic partners and other people who are in your immediate family. And a German surgeon who went with his patient and a donor to Switzerland to do a kidney exchange was prosecuted and lost his licence. So this is something that you don’t do in Germany. That we do do in the United States. It’s not quite clear to me, why. There’s a lot that I don’t understand about these repugnances. Now, kidney exchange is complex. You have to do the surgery simultaneously. I think I don’t have enough time to tell you a lot about that. I’m the man in the yellow gown here keeping my hands out of the way so that no one hands me anything. There’s a kidney in that bucket. But because they’re complex that it’s hard to arrange the transactions. And one of our achievements has been figuring out how to get long chains of kidneys going. So here’s a picture from the New York Times that has 60 people in it. This gentleman started a chain that caused a lot of donations to be made. And the question though is, why is it so complex, when, if you change the law and could buy and sell kidneys, you could make all the transactions simple? I don’t know the answer to that. But as a market designer kidney exchange is a way to get some of the benefits of a market place to people who need kidneys. Without confronting the repugnance that buying and selling kidneys does. And again that’s something that we can do in the United States. You can do it in many European countries. You can do it in England and in Holland. Scandia transplant - I just met with them not long ago; they’re thinking about kidney exchange. But it’s not something you can do in Germany. So let me close by getting a show of hands to test yourself for repugnance. So I’m going to ask you 2 questions. Raise your hand if you are willing to contemplate carefully regulated sales of live kidneys. So if you think it would be ok to buy and sell kidneys raise your hand. Under some carefully regulated way - keep your hands up please and look around. We’re in a big group of economists. And what you see is not everyone by any means is raising their hand. Keep your hands up. Now I’m going to ask a new question. I want to watch the movement in the hands. How about if instead of kidneys I said 'hearts'. So the seller dies. Chicago yeah, yeah, Chicago. (Laughter). The reason I like to do that is to sort of say look around. You know, a lot of times as economists we think if we just explain the benefits of voluntary transactions slower and louder, maybe people will understand. But the point is here, we are in a room of economists and quite a few of you raised your hands for selling kidneys. Many, many of you took your hands down for selling hearts. So many of us have a line that we would draw and say, some transactions are repugnant; maybe they shouldn’t be allowed. So whether your line is in the same place or a different place as someone else, it behoves us all to try to understand where those lines go and why we feel that some transactions are repugnant. And I think this is a first order social science question. Thank you.

Alvin E. Roth (2014)

Repugnant Markets and Prohibited Transactions

Alvin E. Roth (2014)

Repugnant Markets and Prohibited Transactions

Abstract

I’ll speak about “repugnant transactions,” which are transactions that some people want to do, and other people don’t want them to do. That turns out to be a very broad class of transactions that include some things economists understand well (e.g. opposition to transactions with clear negative externalities to third parties), and other things we understand much less well (e.g. opposition to same sex marriage). I began to pay attention to repugnant transactions in connection with my work on kidney exchange: while no one opposes kidney transplantation, including living kidney donation, almost every country in the world has laws against paying for kidneys. The only exception I know of is the Islamic Republic of Iran, where kidneys can legally be bought and sold, although of course there are illegal black markets in many places. (It turns out that in Germany, even kidney exchange, of the kind my colleagues and I have helped establish in the U.S. and elsewhere, is illegal.)
I’ll touch on a wide range of repugnant transactions, which have changed over time (e.g. interest on loans, markets for slaves) and are different in different places. I’ll argue that these are important phenomena that we economists would do well to understand better.


Suggested readings:
• Roth, Alvin E. "Repugnance as a Constraint on Markets", Journal of Economic Perspectives, 21:3, Summer, 2007, pp. 37-58.
• You can browse the many blog posts I’ve written about repugnant transactions at http://marketdesigner.blogspot.com/search/label/repugnance

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