Demand and Supply of Kidneys: Ethics and Efficiency

This article discusses the demand and supply of kidneys, the ethics and efficiency of selling organs, and the inelasticity of the demand and supply curves. It also explores the Grossman model and the relationship between health and wealth.

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Contents
Question1....................................................................................................................................................2
Question 2...................................................................................................................................................5
Question 3.................................................................................................................................................11
Bibliography...............................................................................................................................................13

Question1
i) There are shortages in the availability of kidneys to patients in need because the
demand for kidneys exceeds the supply in great measure. (Beard, et al., 2013) The
demand for kidneys exceeds supply because several countries prohibit the sale of organs
such as kidney and there are no incentives or and compensation. In the diagram below,
the supply and demand for kidneys is denoted. Demand curve for kidneys slopes
downwards as the lower the price P, the higher the demand and vice versa.
The supply curve is upward sloping as the higher the price available for a kidney, the
greater the supply. In the absence of regulation, hypothetically, price and supply are zero.
These shortages exist until the point E is reached. . (Gans, et al., 2011)
Figure 1 Supply and demand of Kidneys
Prepared by Author. Adapted from (Gans, et al., 2011)

ii) From the point of view of ethics, several concerns could be raised if kidneys were to be
sold in the free market. There would be incentives for people with low incomes to sell
their kidneys which would deteriorate their health. The inequity between rich and poor
would be increased since the rich would be able to afford to buy kidneys. Additonally,
free markets rely on symmetry of information so that all player are able to take informed
decisions. In reality, asymmetry of information could be prevalen. This could be
especially true of developing countries where the poor would have less access to
information. There couls also, be an increase in human trafficking for the purpose of
harvesting kidneys. (Budiani‐Saberi & Delmonico, 2008)
From an efficiency point of view the shortages of supply could be reduced with a free
market, since there would be financial incentives for sellers of kidneys. . More supply of organs
could safe many lives. Moreover, if there is enough supply an equilibrium of supply and demand
could be reached (Frederick, 2010). (Curran, 2018; Haeringer, 2018)
iii) The demand curve for organs is inelastic. Organs do not have close substitutes. Organs
are not usually demanded due to tastes but out of dire need. The demand for organs is not
expected to change due to a change in preferences of consumers. Rather, the demand for
organs would be expected to change due to factors like advances in medical technology,
the overall health standards within the economy and other structural factors (Beard, et al.,
2013) However, the demand will tend to become more elastic as more health consciuos people
would choose to or plan to buy.
The demand curve for organs may not be perfectly elastic since if the price decreases the
willingness to pay and 'ability to pay' of some organ receivers may increase. However, it
is highly inelastic. (Gans, et al., 2011)
Similarly, the supply of organ cannot be completely elastic given that only those in dire
need of money would be, presumably, willing to sell organs. Organs cannot be produced
at will and the availability of organs can be increased by only brought about by
introducing structural changes like liberal regulations. Additionally, the supply of organs
is capped by a number of factors such as geographic distance between the donor and the

receiver, the laws concerning the donor and receiver, medical factors such as genetic
disposition etc. In the supply for organs like kidneys is highly inelastic. (Beard, et al.,
2013)
Figure 2 Highly Inelastic Demand and Supply Curves
Prepared by Author. Adapted from Boyes & Melvin (2016)
Hypothetically, the demand should drop if price goes higher. However, healthcare is a basic
necessity which would be demanded, even if price goes higher (Ringel, Hosek, Vollaard, &
Mahnovski, 2002). On the other hand, the supply curve would tend to be more elastic since
seelers would not be willing to sell and a lower price and supply could change fast , if the price
goes sufficiently high. Hence, compensation and financial incentives would help incease the
supply (Gans, King, & Mankiw, 2011).Efficiency in a free market comes from competition. In
the organ donation market, there is no competition a free market would allow buyers and sellers
to compete for the goods. Allowing the sale of organs like kidneys, will create a market for
kidneys. This will help connect buyers and sellers. The perfection of an organ donation market is
restricted by the flow of information in such markets. For example, there may be directories of

buyers and sellers held by hospitals agents such as web sites that connect buyers and sellers.
(Curran, 2018; Haeringer, 2018) In the organ donation markets is a single seller market (the
donor) and there is room for bribes and corruption i.e. those donors that can pay a higher price
would be able to gain the product.
Question 2
In the Grossman model, the demand for health is derived in the context of an optimal control
model. (Bhattacharya, et al., 2013)
Health is seen in three different dimensions in the Grossman Model
 The model interprets health is a stock form, and seeks to establish health as capital which
is a commodity for consumption as well as investment. The utility of health lies in the
fact that being in health Moreover, this stock, like any other stock of capital is subject to
depreciation. In the diagram below, health is depicted as function of wealth, although it
can be a function of other factors such as education etc. Health is produced in greater
measure by those who have more of each of those factors. (Bhattacharya, et al., 2013)

Figure 3 Health as a product resulting from investment
Prepared by Author. Adapted from (Bhattacharya, et al., 2013)
 Any individual, according to the model, can choose an optimal individual level of health
which would determine her life span. Life span, thus, becomes a function of the
investment that a person may put into being healthy (among other things). Any individual
is endowed with a stock of health which depreciates over a period of time but like also
capital, can be maintained and replenished. However, in order to replenish health both
wealth and leisure. However, the amount of wealth and leisure sacrificed must be worth
the return, in terms of the better measure of health achieved. This is depicted in the
diagram below. (Bhattacharya, et al., 2013)
Any individual can choose the investment they can make in order to achieve a return on
the wealth in terms of health. The combination of health and wealth is depicted on the
indifference curve below. They are called indifference curves because the total benefit to

the consumer will be the same and the consumer is indifferent to the results. It is the
combination that the consumer chooses.
Ideally, the hypochondriac would choose to be at E1.
Figure 4 Indifference Curve of Health Care Consumer
Prepared by Author. Adapted from (Bhattacharya, et al., 2013)
It is important to note, that the returns to investment are subject to diminishing returns
because after a certain point, every additional investment may not bring the same return.
The area shaded in red is (Change in E1/ Change in E2) is the Marginal Rate of
Substitution or the wealth required to achieve an additional benefit/ return in terms of
health. (Bhattacharya, et al., 2013)
 Individuals can invest in healthcare by way of investing in medical care, maintaining diet
and exercise routine etc. Therefore, in such a model, health is an endogenous variable

that is dependent on the wealth and time resources that an individual chooses to allocate.
Usually, the utility of time can also be equated in terms of wealth. Hence, the trade off, in
a Grossman model is largely between health and wealth. Since, it is a trade off; the utility
of health for individuals is greater if the availability of wealth is greater because the
individual can pay off. However, if the stock of wealth is lower with an individual then
the individual must sacrifice health. (Bhattacharya, et al., 2013)
Figure 5 Return on Investment of Health as a Good
Prepared by Author. Adapted from (Bhattacharya, et al., 2013)
The rate at which Net Present Value increases with the additional increase in wealth is
called Efficiency of capital. The last addition in capital/ increase in health stock is the
Marginal Efficiency of capital and it is subject to diminishing returns.
The place where the Marginal Efficiency of Capital is equal to the Marginal Rate of
Substitution is the point where the optimal health lies. It is depicted in the diagram below.
(Bhattacharya, et al., 2013)

A hypochondriac individual may invest more in their own healthcare as the utility of health is in
general, greater to a hypochondriac. However, preventive care cannot completely eliminate
disease. Some amount of reactive healthcare would still be required. However, preventive care
may not eliminate disease completely. According to Grossman’s model, the preventive behavior
of the patient is valuable only up to the point where the marginal efficiency of capital is equal to
the investment made in capital. For example, early detection of cancer can help reduce the cost
for the patient to a great extent. However, early detection does not prevent cancer itself. In cases
where the hypochondriac is unlikely to suffer from a disease but still takes tests, the Marginal
Efficiency of capital will be low. In cases where the likelihood of a patient contracting a disease
is high, the marginal efficiency of capital invested in health would be high. For example, for the
demographic “off springs of patients with Type 1diabetes” may have a genetic pre-disposition
towards diabetes. (Carter, 2017) In such cases, the Marginal Efficiency of Capital may be high.
For certain generic demographic groups such as young people below the age of 35 the stock of
health tends to be high but the stock of wealth may not be high. The opportunity cost of forgoing
wealth and time, in order to maintain health, may be high. In such cases, hypochondria may be
relatively more expensive and the wealth trade off will amount to a higher sum. In some cases,
such as among the group of “persons who smoke” and “who have limited ability to pay”,
hypochondria will induce behavior that will cause the person to quit smoking. This is an efficient
way of achieving optimal health. However, the subset “professional athletes” within the set
“young people below 35” may have a higher utility for health. In such cases, development of
hypochondria may increase the efficiency, thereby justifying the investment made, in additional
expenses and time spent on dealing with health issues or preventing health issues.
In geriatric patients, the depreciation of health is higher and hence, it may seem that
hypochondria may help them maintain the optimal health standard. However, in case of geriatric
patients, treatment may have diminishing marginal returns. Hence, hypochondria may drain their
wealth sooner than normal and may not produce the desired results.
iv) If a hypochondriac person wins the lottery, then the willingness to pay becomes higher.
This implies that the opportunity cost of health is lower. This is because; the utility

derived from wealth, the patient will indulge in greater preventive and reactive health
care.
The depreciation of stock of health due to efforts put in acquiring wealth will be lower.
Hence, the Return on capital curve will shift to the right. Additionally, preventive care
will help reduce the depreciation of the stock of health.
The Patient will shift to a higher indifference curve since the patient can aim for a higher
point of optimal health and wealth combination. Hence, the demand for heath care can be higher.
In this case, the point where MEC and Investment are equal is higher. In such a case, the patient
can actively seek to increase her life span by investing more in more health care. This is
especially true of geriatric patients. Geriatric patients may be able to pay for better care such as
nursing homes etc., because the utility of health is higher in those cases.
Figure 6 A Shifts in Indifference Curve and Return Curve

Prepared by Author. Adapted from (Bhattacharya, et al., 2013)
Question 3
1)
Several Studies have been conducted to assess the viability of the myth that rates tend to increase
suicide during certain phases of the lunar cycle. (G.Foster & lRoenneberg, 2008) Some study the
effects on Biology while some study the effect on behavioral patterns. However, no solid links
have been found to be found between the both, the biology as well as behavioral patterns. For
example studies the relationship between lunar cycles and human physiology and completed as
assessment of various aspects of human physiology such as circadian rhythm, endocrine
functioning and more. No evidence was found that linked lunar cycles to human physiology. The
malfunctioning of physiological rhythms are the can be cause of changes in behavior. However,
the study found that there was a very weak co-relation between the full moon and psychology.
(Belleville, et al., 2013) Studies such as help eliminate changes in physiology leading one to
believe that suicidal tendencies must be caused due to mental disturbance related to lunar cycle.
However, also found weak to no co-relation for the same. Notably, some links have been found
between lunar cycles and sleep. However, the relationship between sleep and mental health is an
issue that needs to be explored more.
2) The studies have established that there is no clear link between lunar cycles and the suicide
rates of patients. These studies have been conducted in diverse countries and on diverse
demographic groups. Hence, these studies can be useful in helping establish the conclusion about
the lack of a relationship between lunar cycles and suicide rate or among hospital patients.
Cognitive biases among human behavior can be a reason for myths. One among cognitive biases
is time discounting. Statements such as “hospitals are full around new moon” are based on
inefficient data. They are not based on in depth studies, rather on the uncontrolled observations
of a person. Individual perceptions, intuition and temporal biases such as hindsight bias may play
a role in such beliefs. (Pohl, 2012)Additionally, confirmation bias may help in keeping such
biases alive. For example. People may simply interpret a random surge in hospital admission to

the full moon simply to confirm to the existing beliefs as challenging the belief would be more
tedious and stressful. (Luhmann, 2009)
3) Another myth regarding healthcare is that drinking more water is better for the body. The
body has natural mechanisms that will indicate if the body has water levels that drop below the
minimum sustainable levels. Hence, it may not be necessary to increase water intake, especially
since no strong correlation between increased water intake and direct benefits to health have
been found. Additionally, the diet of a person already has water content that may be sufficient to
survive. (Negoianu & Goldfarb, 2008)
Fluid intake and overall health two very complex areas of health there are several factors that
determine the maintenance of homeostasis itself. Additionally, other benefits of drinking water
have not been examined or studied in detail. However, “good hydration” has definitely been
found useful in several areas of health. “Good hydration”, however, is a subjective concept that
changes with different factors such as body size, water retention tendencies, etc. (Popkin, et al.,
2010)
v) Present Bias refers to the Tendencies of assigning, sub consciously, greater weight age to
risks and pay offs that would accrued in the nearer term or to risks and pay offs that will
be available in the present. (Kang & Ikeda, 2013) This bias assigns lesser weight age to
long term effects of actions, whether it is risks or pay offs. Thus, there is a tendency to
not assign fair or unbiased values to risks and pay off which may affect the health of a
patient. The most typical example is the sacrificing long term health and increasing the
risk of obesity due to consumption of foods higher in sugar, cholesterol and fat content or
“junk food” for greater pleasure in the present. This is the present bias for choosing junk
food. Over a period of time, it may decrease the health stock of a person. In some cases,
the decrease health can lead to opportunity costs of health such as decreased productivity.
In some cases, the long term costs may be higher due to the cost of health care associated
with obesity.
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