>>Al Roth: We’ve been making markets since
before the invention of agriculture. And so markets are a little bit like languages. They’re
part of what people do. And like languages, there are a lot of different kinds of markets.
So I want to tell you a little bit about that today.
So when you think about the stock market, you think about a market that’s anonymous
and in which price does all the work. When you by 100 shares of AT&T on the stock exchange,
you don’t care who you’re buying from, they don’t care who they’re selling to and the
job of the stock exchange is price discovery. It should find the price at which supply equals
demand at each moment in the trading day. But not all markets look like that.
I teach at Stanford University, and so we are a part of the big annual market of college
admissions. And Stanford doesn’t raise its tuition until just enough students remain
to fill its seats. Stanford is expensive to go to. But we don’t set the price so that
supply equals demand. Lots of people would like to come to Stanford. And there’s an application
and admissions process. So you can’t just choose to go to Stanford. You have to be admitted.
Labor markets are like that, too. You can’t just choose to work for Google. You have to
be hired. And Google doesn’t hire its engineers by lowering the wage until just enough people
want to work for Google. Google — Google is a great job. You have to be — you have
to be hired. And, of course, Google can’t just choose its
engineers, either. They have to compete with Facebook. So these are matching markets. They’re
markets in which you can’t just choose what you want, even if you can afford it. You also
have to be chosen. So it’s a lot like marriage. You can’t just
choose your spouse. So my colleagues and I have been involved
in the design of a number of different kinds of matching markets. And the one I’m going
to tell you about today will connect a little bit with some of the exciting biotechnology
stories we heard about this morning, because I’m going to tell you about kidneys. And while
we’re waiting for the pig kidneys to be available, there’s a shortage of kidneys. There’s 100,000
people waiting for kidneys today in the United States, for deceased donor kidneys. That’s
what the little red dot on your driver’s license means. If you don’t have a little red dot
on your driver’s license, sign on to the online organ registry and get yourself on.
Only about 11,000 deceased donor organs become available in the United States each year.
So there are 100,000 people waiting. Only about 11,000 can get transplanted each year
the way they’re waiting. Many people die while waiting. It’s costly to wait. It’s a deadly
disease, kidney failure. But there’s another source of organs. You
each have two kidneys, and if you’re as healthy as I hope you are, then you could remain healthy
with just one, which means if you knew someone who had kidney failure, you could save their
life by giving them a kidney. But sometimes you’re healthy enough to give
a kidney, but you can’t give it to the person you love. And this is what opens up the possibility
of exchange, which is what brings economists into the picture.
So a simple kidney exchange is between two incompatible patient donor pairs. So at the
top here, we have a donor who would like to give to a recipient but can’t because they
have incompatible blood types. And on the bottom, we have a blood type B donor who can’t
give to a blood type A recipient. But they could exchange with each other so that the
patient who needs a blood type A kidney could get one and the patient who needs a blood
type B kidney could get one. Now, this is an exchange that takes place without any monetary
transfer, so it’s an economic action. It’s an exchange. But there’s no money. And that’s
in part because it’s against the law to buy and sell kidneys in the United States.
Here’s a sentence from the National Organ Transplant Act of 1984, which says, a little
obscurely, that you can’t buy or sell kidneys. What it says is, you can’t give valuable consideration
for an organ for transplantation. So you might be concerned that that transaction
we just saw involved — it certainly involved something valuable. Kidneys are exchanged.
You might worry that it’s consideration. Some years after we started to do this — the
first kidney exchange in the United States was in 2000 — Congress amended the act to
say that kidney exchange was not in violation of the act. So that kind of exchange is a
gift under the terms of the Uniform Anatomical Gift Act. It’s not valuable consideration.
But it does mean that you can’t write contracts for kidneys. You can’t give valuable consideration
for an organ for human transplant. And that makes the logistics of kidney exchange complex.
So here’s a picture that was taken in January of 2006 in Cincinnati, Ohio. I’m the man in
the yellow gown, keeping my hands out of the way. And —
[ Laughter ] — what’s going on is behind me in this picture,
not in that picture, but someplace where you can’t see, there’s another operating room
just steps away. And a nephrectomy has been done, a kidney has been removed from a donor
and it’s sitting here in this bucket, being transplanted into that man.
And the surgeon in the tiger skin cap is a man named Steve Woodle, who I will actually
be giving a seminar in his hospital tomorrow. At the same time, in Toledo, Ohio, there’s
another surgeon named Mike Rees. And he’s getting ready to do the same thing with the
other donor and the other patient. So the donors have traveled.
And when I say “at the same time,” I mean literally at the same time. Steve gets on
his cell phone, and he says, “We’ve anesthetized the patients. We’ve made the incisions. We’re
ready to go. Are you ready to go?” And in Toledo, Mike Rees says, “We’re ready
to go.” And then they do the exchange. So this simple exchange between just two pairs
requires four operating rooms and four surgical teams to be available simultaneously. So it’s
a logistically complicated operation. But we’d like to do more complicated operations,
but the logistics are getting in our way. So our data can be visualized in this kind
of compatibility graph. Each circle is an incompatible patient-donor pair, and an arrow
goes from one pair to the other if the kidney from the donor in the first pair is compatible
with the patient in the second pair. And what we look for is some kind of optimal set of
matches that gives us as many transplants as we get, for instance. So here we have a
two-way exchange going on here. We have a three-way exchange going on here. Takes six
operating rooms. And here we have a chain, something unusual
that I want to talk to you about. It starts with a nondirected donor, a donor who doesn’t
have a particular patient in mind. And it ends with a patient on the waiting list for
a deceased donor organ, so a patient who doesn’t have a particular donor who’s thinking about
him. And before kidney exchange started in the
United States, when a nondirected donor presented himself, he had to go through a lot of physical
and psychological screens, and once he passed through them he was told you can save someone’s
life by giving a kidney to someone on the waiting list for a deceased donor.
But once we started to have this thick marketplace of patient donor pairs and database of available
pairs, we could offer a more attractive alternative to these nondirected donors. We could say
you could give a kidney to the patient in some pair whose donor will pass it on, whose
donor will pass it on to someone on the wait list.
So this kind of exchange, you see it has three transplants in it. So there’s six people in
the picture. Here’s a picture from 2007. And that’s three transplants that wouldn’t otherwise
have gotten done. If you’re a living donor and you want to give to someone and you can’t,
you go home and they wait for a deceased donor organ. But now you can to give someone get
your patient to get a kidney. But the question is why only six people in
the chain? And the reason is we did them simultaneously.
That six operating rooms was the most we could function.
So let’s think why we do exchanges — why we did exchanges simultaneously. We still
do this kind of exchange always simultaneously. Supposing we didn’t.
Well, on day one, donor two gives a kidney to recipient one, and then something bad happens
and donor one fails to give a kidney to recipient two. That’s a tragic loss for pair two. They
had a surgery that didn’t help them, they didn’t need, and the worst thing is they no
longer have a kidney. They can’t take part in the next kidney exchange.
But if a chain is initiated by a nondirected donor, then every pair can get a kidney before
they give one. So if the chain breaks, it’s not a terrible loss for pair two. It’s very
disappointing. They were expecting a kidney, but they still have a kidney so they can take
part in next week’s exchange. So the cost of a broken link is not so bad.
Incidentally, we only have about 2% breakage. People are a lot nicer than economists sometimes
give them credit for. So we can explore what are the possible benefits. And the benefits
are you can get long chains. The first one was reported in this 2009 paper, and Mike
Rees, the Toledo surgeon is the hero in this story. Here is the same chain reported in
people magazine and there are 20 people in the picture, so ten extra transplants. Ten
donors and ten recipients. And you can get longer chains than that. Here’s a picture
with 60 people in it. And kidney exchange has become a standard
part of American transplantation. Now about 10% of the live donations last year were made
through kidney exchange. So it’s still small, but it’s making transplantation more available,
despite this shortage. Now, these are still pretty complex. Not having
to do them simultaneously means we didn’t need 60 operating rooms there. You can do
it with your four to six operating rooms. But of course a lot of people ask why can’t
we just buy and sell kidneys; right? My late colleague Gary Becker at the University of
Chicago says, you know, there’s no kidney shortage. You all have two.
But we have laws almost everywhere in the world against buying and selling kidneys.
The one exception in the world is the Islamic Republic of Iran.
So we could talk hours about this. I have thought a good deal about it, but for now,
I’m going to take this as a constraint on market design.
[ Laughter ] And I started to think about which are the
transactions you can’t transact? So let’s call a transaction repugnant if some people
want to do it and other people don’t want them to.
So turns out there are lots of repugnant transactions. Some have been important in various ways throughout
history. One that we’re seeing in flux right now is same-sex marriage. I think of that
as a prototypical repugnant transaction. Some people want to marry each other and other
people don’t want them to. Well, in the last ten years since Massachusetts
made it legal, it’s become legal in a bunch of American states, but a lot of states have
passed state amendments against it, so it’s in flux. I think all the states are going
to become blue there, but these are things that take time. There’s something going on.
There are historically important repugnancies, like interest on loans. For hundreds of years
in Medieval Europe, the church didn’t like people to charge interest on loans. Of course,
we could hardly have the capitalist economy we have today if we didn’t have a market for
capital. But it’s not as we become all modern that
all our old repugnances fade way. We used to trade slaves in the United States. We don’t
do that anymore; okay? The most common way to buy passage across the Atlantic ocean used
to be temporary slavery, indentured servitude. The 13th Amendment to the Constitution says
we don’t do that anymore. So repugnant transactions, the ideas we have
as people about what markets we will support and what we won’t, are an interesting question
that scientists, social scientists need to understand better than we do today.
And so what kidney exchange has done is it’s brought some of the benefits of marketplaces
to the people who need transplants without running into this barrier of repugnance.
Now, I could tell you about victory after victory that we’ve had in kidney exchange.
But it’s in a battle that we’re losing — in a war that we’re losing. We’re winning battles
but we’re losing the war. When I started to working on kidney exchange,
there were 40,000 people waiting for kidneys in the United States, and today there are
a hundred thousand. There are many fewer waiting than there would
have been if we couldn’t facilitate the live-donor transplants we’ve done, but more needs to
be done. And there will come a day when transplantation is primitive medicine. But those hundred thousand
people on the waiting list will either have been transplanted or will have died by the
time that happens. So the question is what can we do? This is
— right? Economics is about making the world better.
Well, let me leave you with a suggestion. There are parts of the world where kidney
failure is a death sentence. Okay, what I’m showing you here is a graph of how many transplants
per million of population go on in the world. So the United States is here. These are deceased
donors and living donors. But there’s a bunch of populous countries in the world where there’s
zero transplantation. In the last ten years in Nigeria, there were a hundred transplants.
Nigeria has half the population of the United States and twice the incidence of kidney disease.
So there are a lot of untransplanted people around the world and in the United States.
Wouldn’t it be great if we could invite them to come to the United States and get kidneys.
But of course we have a shortage of kidneys and we always have budget shortages.
But it turns out kidney transplants pay for themselves. Every time you transplant an American,
you save Medicare $250,000 in the five years starting with the transplant because dialysis
is much more expensive than transplantation. So you save so much money — this is an idea
that Mike Rees and others, we’ve been talking about. You save so much money by transplanting
an American that you can afford to pay for two surgeries. So you could bring kidney patients
from places where there is no transplantation, with their willing donors, exchange — do
a kidney exchange with Americans, and Medicare would save money on the combined set of surgeries.
So there may be other possibilities as well, but part of what we should be doing is thinking
about how to help those people until we can make transplantation a primitive form of medicine,
so that your grandchildren will say to you, “Tell me again? You used to cut the kidney
out of a healthy person and sew it into a sick person and that was medicine?”
And when that’s a thing of the past, we won’t have to do this. But in the interim, there
are things that we might be able to do, not that this one will be easy to arrange.
Thank you. [ Applause ]