Buying Babies

Al Roth recently published a paper in the Journal of Economic Perspectives entitled Repugnance as a Constraint on Markets. It's a very interesting article and talks about individual preferences (mainly feelings of and beliefs about the inherent repugnance of certain exchanges between consenting individuals) ends up causing mutually beneficial exchanges to never occur, and entire markets for goods and services disappear. It's similar to Akerlof's market for lemons model if you squint your eyes and look at it from an angle. Roth mainly talks about the market for cadaver and live organs - specifically kidneys. Individuals are only allowed to donate their live organs; they cannot sell them. As such, there is a shortage of kidneys - demand far exceeds supply - and whereas normally prices would adjust and bring this market into equilibrium, our consciences collectively create political incentives to ban these exchanges and we're left with a ban on kidney exchanges that quite literally kills people waiting for kidneys.

Another kind of repugnant market is the market for babies. Richard Posner, in an earlier edition of his law school textbook Law and Economics I think, noted that markets could allocate babies to needy families better than government agencies in a way that was welfare improving for all involved parties, and less expensive probably. It's often said that Posner will never become a Supreme Court Justice because he wrote this - or at least, this is one of the reasons said (there are many usually). In Guatemala, though, it appears that an informal black market actually exists wherein private brokers pay Guatemalan women as much as $3,000 per baby to conceive (story here). Robin Hanson gives a short riff on the situation there, nothing both the economics of the idea of this kind of repugnant exchange, and the particular problems inherent in this exchange (e.g., child-stealing and kidnapping to for organs to be sold) in Guatemala. The latter problems have to do with institutional problems - namely poorly enforced property rights, poor security. The decision to conceive a child to sell, though, seems welfare-enhancing for both the woman who values the experience of conception and giving a child away at a cost less than $3,000 (otherwise, why does she do it?) and the family who receives the child (who must have a willingness to pay above $3,000, otherwise why are they doing it?).