The Difference Between Kidneys and Babies

The most interesting question that I’ve addressed in a debate recently has been whether there should be a market for adoption and surrogacy. Although the concept jars with most people, the real reason to oppose such a market isn’t immediately clearly.

After all, if two individuals can make themselves happier through the exchange of money for services, what business does the state have in prohibiting it? We have markets for everything else, and there’s strong evidence to suggest that organs trade should be legalised. So what is the difference between a kidney and a baby?

Markets are great because they allocate resources in the most efficient manner. With some caveats, goods and services are delivered to the person who values them most and consequently offers the highest price. There is a pretty obvious problem applying this analysis to the market for adoption. From the perspective of economists, the difference between the market for babies and other goods is simple: we care about the commodity too.

So if we are trying to allocate unwanted children, there is a clear trade-off. Should they be allocated with primary consideration for the parents or the children? The public systems today world-wide typically involve no financial exchange, but send the child to the best home. Thus, any arrangement whereby the child was sold to the highest bidder doesn’t send the child to the best home.

Even if the parents need to surpass some basic minimum standard, the situation can hardly improve substantially. Are we sure it’s worse? Obviously wealth should be a factor in considering the ability of a family to care for a child, it shouldn’t be the determining one. As a signal of desire and willingness to care, it’s equally not credibly because the imposition of financial payments varies wildly depending on your circumstances. The conclusion: children will be worse off.

It’s also worth noting that the current market for adoption has more supply than demand. The supply here typically comes from unwanted pregnancies. So what impact does the legalisation of a market for adoption actually have? Well, demand is completely unaffected. There are still as many people looking for children, although now they can be distinguished by the price they’re willing or able to pay. Supply has to rise in response to a non-zero price. This means more children on the market, and therefore more children without loving homes.

Let’s consider it in more detail though. Now that there’s a market for surrogacy, they may prefer to hire a surrogate at a premium for a new-born baby, than adopt an older child in the care of the state. Thus, surrogates satisfy more of the demand for kids and parents substitute away from adoptees.

Of course, most of these surrogates wouldn’t be having children if there wasn’t a financial incentive. Voluntary surrogacy rates don’t nearly satisfy demand under the status quo, after all. So with a market for surrogacy and adoption: existing children are more likely to remain without a loving home, due to an increasing number of children who otherwise wouldn’t have existed. There’s also going to be an increase in unplanned pregnancies, pushing the supply up even further. Why? Because the value of unwanted children just jumped. Not to mention the parents who might have kept the child for its sake, who instead sell it on for profit.

The result of all this? More children in care and not in loving homes, which is a bad thing. In many ways though, this analysis is confused by not having a framework in which to consider babies who wouldn’t have existed without the policy’s introduction. But a world with fewer children lacking adoptive parents and growing up without a loving family sounds better.

Depending on your perspective, there may be another factor to take into consideration. Since there’s now a resale value on unwanted children, the opportunity cost of an abortion just got higher: you now have to weigh the benefits of termination against the foregone adoption revenue. Whether this further increases the supply of unwanted pregnancies and children looking for a home depends on another, more sinister question: what is the price elasticity of demand for abortions?

Inspired by conversations with Dave Byrne.

© The Free Marketeer 2010

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