Subscribe
Share
Share
Embed
Econ To Go brings Stanford economics into your everyday life — served with a side of coffee. Hosted by Neale Mahoney, economics professor and director of the Stanford Institute for Economic Policy Research (SIEPR), the show takes you on a walk across campus with leading thinkers as they unpack the ideas that shape the economy, business, and public policy.
Each episode features researchers and practitioners whose insights will sharpen your perspective and shift the way you see the world. From AI and productivity to monetary policy and college sports, you’ll hear lively conversations on issues that matter. Smart, curious, and conversational — it’s Stanford economics, to go.
Neale Mahoney: Markets are often treated like natural objects, things that simply exist. But economist Al Roth sees them differently. To him, markets are human inventions, systems we design, shape, and sometimes struggle to agree on. Because when money and morality collide, things can get complicated. Who should be allowed to buy and sell? What should they be allowed to transact? and what happens when people want to trade things that others find morally unacceptable.
Alvin Roth: I think that one of the things we need to do is experiment on what we're morally obliged to do and reflect on it in connection with what we're actually able to do.
Neale Mahoney: I'm Neale Mahoney, Economist and Director of the Stanford Institute for Economic Policy Research. On this episode of "Econ To Go," I catch up with Stanford Economist and Nobel Laureate Al Roth over coffee on campus. We talk about what he calls moral economics, the study of markets where society struggles to agree on what should be bought and sold. From kidney exchange to commercial surrogacy, from prostitution laws to the surprising economics of matchmaking, Al shows us that markets don't just allocate goods. They also reflect our values. You've said that markets and marketplaces are human artifacts. They are not just features of the natural environment. Why is that a good starting place when we think about the study of economics?
Alvin Roth: Well, for a long time, economists sort of thought that markets were things that we just had to take as given. You know, we speak of economists thinking that modeling people as price takers, but in fact, they also thought of us as market takers. There are these markets. But of course, markets are human artifacts. To a great extent they're collective human artifacts, but marketplaces are often artifacts of individual companies or designers, or small groups of participants who modify the marketplace to fit their needs over time, just in the way that, you know, Uber is a marketplace designed by the company Uber. But I think there's a good analogy, which is that languages are also human artifacts, and they're collective human artifacts. You and I can speak to each other in English because we both learned English in a conventional way, but there are lots of words in our English that weren't in the language 100 years ago, words like computer and internet and AI. So, we're constantly modifying the language to better suit our needs.
Neale Mahoney: Right, and the new markets evolve, and at some point, everybody agrees that they are a new market or a new marketplace, just like words enter the lexicon at some point. Everybody knows that they're a real word and they understand it.
Alvin Roth: At some point, right, markets become part of the environment, and then you are a market taker in a way. When I want to go to San Francisco, I can call an Uber. I have an app, and I play by the rules of the app. I've learned how to use it.
Neale Mahoney: Enlightening metaphor, I really like it. So in your work, you often think about transactions that some people want and other people think should not be allowed. How do you think about those moral boundaries on markets and on trade?
Alvin Roth: Well, I think about them a couple of different ways. As a social scientist, I'm interested in what people's views are about the morality of different kinds of transactions and different kinds of markets. And as an economist, I'm interested in what are the consequences of that. Repugnant transactions is a phrase I've been using for a while to mean markets that some people want to engage in, transactions that some people want to engage in, and other people think they shouldn't be allowed to for reasons that they express in moral terms.
Neale Mahoney: What are go-to examples of repugnant transactions?
Alvin Roth: Well, think about same-sex marriage. Two people want to marry each other, and some people think they shouldn't be allowed to. And it's for moral or religious reasons, not for obvious negative externalities. In other words, the people who object to same-sex marriage don't think that they're going to have to marry someone of the same sex or that they'll directly be harmed. But nevertheless, there were lots of people in the United States who objected to them. But there are lots of these. So, for instance, here in California and now in every American state, commercial surrogacy is legal. You can get help in starting your family by paying someone to bear a child for you, but it's not legal in most of the world.
Neale Mahoney: Yeah.
Alvin Roth: So a lot of Western Europe has tried to ban surrogacy, but if you fail to completely ban surrogacy, there will be babies. And if there are babies, you have to deal with them. And often the repugnance to surrogacy has to do with protecting vulnerable people. It's a balance of what you can have and what you can prevent. And in different perfectly civilized places, we've reached very different solutions on that.
Neale Mahoney: It's fascinating.
Alvin Roth: I gave a talk in Berlin on controversial markets. And I focused on three, on surrogacy, on kidney exchange, and on prostitution. And the reason those were three good markets for an American to talk about in Germany is the German laws are exactly the opposite of the American laws. In Germany, the only one of those three that's legal is prostitution. And in the US, it's surrogacy and kidney exchange that are legal.
Neale Mahoney: I think there's, we've both encountered them, there's a group of economists who, while they generally respect people's preferences, when it comes to these preferences, they think that people should change their mind and just allow market transactions. But you, you know, take people's preferences as they are. You try and understand where they come from, religion, ethics, norms, but then dig into the downstream consequences for people, for how we design trade in these spaces, because trade still occurs even if it doesn't occur through markets. Is that how you think about it?
Alvin Roth: A little bit. I mean, as a social scientist, I'm fascinated by the fact that people have preferences on market. But I think that moral economics is sort of the intersection of economics and sociology. In other words, we have social norms that are powerful, but they may not be as powerful as we think they are.
Neale Mahoney: Designing markets often means working well outside the realm of economics. Doctors, judges, policymakers, they all wrestle with difficult questions about what should and shouldn't be allowed. Over coffee, I ask Al about the challenge of explaining economic thinking to audiences who don't necessarily see economists as part of the "helping professions."
Alvin Roth: So, different audiences are different. Lately, I've been talking a lot to doctors about surgery, about the surgeries they do. So, the big initial obstacle was convincing them that economists were fellow members of the helping professions and they should listen to me. And I've been doing it long enough that they're now convinced. But there was a long time where I had to begin every talk with, why are you listening to an economist? What is it I can tell you about how to organize your work that will make it more productive? But other audiences expect us to have expertise. So I've been involved in clearing houses for labor markets. And they were pretty receptive to the idea that economists would know something about how to organize labor markets. And they contacted me and asked me to help them redesign their market.
Neale Mahoney: So kidney exchange, which is something that you've studied for many years, brings together a lot of these thorny problems. Constraints on trade, complicated institutions, life or death stakes. What do you find so fascinating about the problem as an economist?
Alvin Roth: Well, first of all, it's a problem of scarcity and economics deals with how to efficiently allocate scarce resources. But also, economics is about how to make scarce resources less scarce. And Gary Becker used to say, "Kidneys aren't scarce. You have two." The only problem is we're not letting the price mechanism increase the supply of kidneys because healthy people can remain healthy with just one kidney. So, we have lots of living donor kidney transplants, but it's against the law in the US and almost everywhere in the world to pay a donor for a kidney. So, Gary's thought was if we allowed people to be paid for kidneys, there'd be no shortage of kidneys. But as it is, there's a terrible shortage of kidneys. We have 500,000 people on dialysis in the United States right now, but we only do about 27,000 transplants a year. So, most people who could profit from a transplant will die without getting a transplant. And that's even more true in low and middle-income countries. And it's a giant part of the American medical care. You know, it's like 7% of Medicare.
Neale Mahoney: Exactly. It's very expensive for people who are on dialysis, you know, going three times a week, traveling. It's a huge-
Alvin Roth: It's huge and it's brutal. And the longer you're on dialysis, the less healthy you get. So, even if you get a transplant after a long delay, it's not as good health care as if you got it promptly. So, there's a real shortage of kidneys for transplant, but there's real resistance to paying donors for kidneys. So, the way we helped our medical colleagues address part of this problem was through kidney exchange. The way kidney exchange works is supposing you want to give a kidney to someone and you're healthy enough to do it, but you can't give to the person you love, and then I'm in the same situation. It might be that I can give to your patient and you can give to my patient, and that's a kidney exchange. So, that way, each patient gets a compatible kidney, a kidney that will work for them from another patient's intended donor. And you can have more complicated exchanges than that, particularly because there are several hundred, non-directed donors a year in the United States. A non-directed donor is someone healthy enough to give a kidney who wants to give a kidney and doesn't have a particular recipient in mind.
Neale Mahoney: So how many of these non-directed donors are there a year?
Alvin Roth: So I think last year there were about 500.
Neale Mahoney: And what's so powerful about somebody who gives a donor not to help a specific family member, but out of some broader sense of altruism or duty?
Alvin Roth: What's powerful is they can start long chains of transplants. If you wanted to give a kidney to someone but can't, and I wanted to give a kidney to someone but can't, but I can give to your patient, you can give to mine, we would like to do those exchanges at the same time to make sure that nothing breaks down because it's not legal to write a contract on a kidney. You can't say, "We'll give you a kidney today and you give us a kidney tomorrow." That might break down for moral hazard reasons, but also for medical reasons. But if you have a non-directed donor, you can have the non-directed donor give to your patient on day one, and then on day two you give to my patient, and on day three, I give to some other patient. And if the chain breaks for some reason, that's very disappointing. But the pair that didn't get the kidney, they still have their kidney. Each pair in the chain was going to get a kidney before they gave one. And so they're not harmed in a tragic sense, and they can participate in kidney exchange tomorrow. This has proved very effective. So those 500, you know, small number of non-directed donors, they account for a really high percentage, you know, something verging on half of the 1,500 kidney exchange transplants that we do each year in the United States. So you've worked on the theory and on the implementation of kidney exchange. What's harder, you know, writing the econ papers, dealing with pesky referees, or dealing with, you know, the different stakeholders with their different understanding and different objectives in the real world? Well, dealing with the world is always hard. One of the things we'd like to do is help kidney exchange grow around the world. But just as most countries have rules against paying kidney donors, the World Health Organization and some of the big transplantation societies for a long time had a rule that said countries have to be self-sufficient in transplants. And that turns out to work very much against giving appropriate medical care to people from small countries or countries that don't have a lot of transplantation.
Neale Mahoney: You can understand where this comes from, right? They don't want low-income countries to be sort of donor countries and rich countries to be all the recipients of it. I totally get where that comes from. But explain the problem with those sort of blanket bans.
Alvin Roth: If you have someone who's highly sensitized and they come from a small country, then there might not be a compatible kidney for them in the kidney exchange pool. Near the end of COVID, I traveled to the United Arab Emirates for the first kidney exchange between Israel and the UAE. And that was quite something because as you can imagine-
Neale Mahoney: There's more than just a medical breakthrough, right? It has geopolitical-
Alvin Roth: Exactly. It took some years to arrange that because there were problems other than just the medical problems. But the fact that we were able to get Israel and the UAE to coordinate for each other on kidney exchange gives me hope that maybe one day, the US and Canada will be able to cooperate because Canada has excellent kidney exchange, but they're only about the population of California. And we have excellent kidney exchange, but there are still people so highly sensitized that American Kidney Exchange has trouble getting them a kidney. But there are bureaucratic obstacles. You know, their payment system is very different. Their accreditation system for hospitals is very different. So you asked what's hard, and what's hard sometimes is overcoming all the tiny problems that pile up to get in the way of doing things.
Neale Mahoney: Your work beyond what most economists do has changed, you know, lives for thousands of people, but there's half a million people in the United States on dialysis, and, you know, we're still just doing tens of thousands of kidney surgeries per year. When you think bigger, what are the bigger problems? What are the opportunities?
Alvin Roth: If we could be more generous to donors, to living donors, we would also have more kidneys. And the question is how to do this while guarding fiercely against exploiting the poor and, you know, not having appropriate compensation and not having appropriate informed consent and not having inappropriate donors. So that's something that's worth thinking about. So periodically in the United States, there are proposed amendments to the National Organ Transplant Act that would allow little experiments to be run. Right now, there's an act being introduced. It's called the End Kidney Deaths Act. And what it would do is give a modest income tax credit to non-directed donors. So it would give modest compensation to a small group of donors, which might become a larger group of donors if you could overcome some of the barriers that are stopping some people from being non-directed donors. And we'll see. If it passed, it would be a good experiment. It wouldn't cause the world to end the way paying plasma donors in the United States doesn't cause the world to end. If terrible things started to happen, you could, of course, end the pilot, or if good things started to happen, you could expand it. And so one of the things I say in moral economics is we should be doing more experiments.
Neale Mahoney: Kidney exchange is one of the clearest examples of how market design can save lives. But building systems like this requires more than just models. It means working with the doctors and hospitals and policy makers who understand the day-to-day reality of these systems. At the cafe, I ask Al why listening has become such a central part of how he designs markets. How do you think about listening?
Alvin Roth: Very seriously. So, first of all, there's just lots I don't know about how kidney surgeries work or how doctors progress through their careers, or how schools choose students and what the consequences of that are, or for that matter, how economists get their first jobs. You know, I've been involved in the market for economists. That's one I had some personal knowledge of. But all the others, you have to listen really carefully for a couple of reasons. One is, there are lots of things you don't know. The other is, you have to learn to speak the language so that you understand what they know that you don't know, but also so that you can communicate what you know that they don't know. Because by and large, the people I talk to about problems in the markets that they're experiencing, they don't speak in terms of models or statistics, or incentive compatibility. So you have to understand how to speak to them. And part of understanding how to speak to them, involves knowing things that may not be germane to my task at hand, but to show them that you're not illiterate in their subject.
Neale Mahoney: I can imagine lots of research comes from listening carefully, when you're not immediately shoehorning what they're telling you into your sort of preset model of the world. But in fact, you understand that there are constraints, there are norms that really in fact, the economic interpretation in ways you wouldn't have noticed if you weren't listening carefully. So, in your forthcoming book, "Moral Economics," you've talked about how markets need social support to thrive, but also that bans on markets need social support, otherwise they will be undercut. What do you mean by that?
Alvin Roth: One of the things I say in the book is, why is it so easy to buy drugs and so hard to hire a hitman?
Neale Mahoney: It's a provocative statement.
Alvin Roth: And basically, the idea is we really don't like heroin and we really don't like contract killers, but we have heroin, but largely, we don't have contract killers. You know, that's not a very thriving market. And so we should keep up our ban on contract killers. We're doing a great job. When we catch them, we should put them in prison. And often the way you catch them is, if I said to you, "You look like the kind of guy who would know where I could find a killer. Can you point me out?" You know, you'd be horrified and you'd say no, but later, when you called the police and said, you know, this guy Roth, he's trying to hire a killer, they would say to you, "Call him back and tell him on second thought, you do know a contract killer." And they would match me up with a policeman. Whereas, if I said to you I wanted to buy heroin, you'd be shocked, but you probably wouldn't call the police. And if you did call the police, they'd say to you, "Look, we're a very busy police department. You know a professor who thinks he might want to buy heroin, you know, leave us alone." So, part of the answer is the ban against drug sales is not as effective, is not as socially supported as the ban against contract killers. And so, maybe we're not morally obligated to keep filling our prisons with drug convictions. More than 40% of our federal prisoners have drug convictions. So, but we're full of drugs. So, we might start experimenting with, you know, treating heroin addicts more as patients than as criminals. Even if it turns out that incarceration remains on the menu of treatments, but in that case we should be, you know, if we're going to imprison someone for being a drug addict, we should be experimenting with can we get them off it while they're in prison, you know, can we rehabilitate them. So, I think one of the things I say about moral economics is you're not morally obliged to do something unless it's possible for you to do. And there are some things that we're learning we don't know how to do. So maybe we don't have to keep the same punitive laws as our only method of trying to combat drug addiction.
Neale Mahoney: No, it's a remarkable point. And I guess the way I process it is there's this complementarity between the laws we write down in paper and the sociology and our morals and ethics, which you need to enforce the laws. And if you have one without the other, it doesn't really work that well. Sometimes attempts to prohibit transactions just pushes them onto the black market. How should we think about the trade-offs between what we think is morally or sort of legally correct and these unintended consequences?
Alvin Roth: Of course, there are black markets for kidneys, and some of the black markets are very nasty. So, I have a video that a kidney surgeon sent to me of a black market kidney transplant being done. And when you look at it, it's not in a hospital. The surgeons are not wearing masks or gowns. So that means very low quality medical care is being given. And that's the part of the black market that really offends me, not the fact that by itself that the donor was probably paid. Also, the thing about black markets is the donors may be cheated, you know, not paid and they not get the post-surgical care that they need. So causing some of kidney surgery to be done by criminals is a really bad thing. Another market that's very hard to ban is prostitution, and prostitution's been around for a long time. And there are two parts. The elephant in the room when you talk about prostitution is that some prostitutes are voluntary sex workers who are doing work that they get paid for that is a better prospect for them, they think, than other opportunities they have. But other prostitutes are trafficked women and children. They're slaves. They're not getting the benefit of their work. They're not volunteering. So the voluntary sex workers are not helped by being labeled as criminals, and in fact, they're harmed because they can't go to the courts when someone wrongs them. And incidentally, being a prostitute on the street is one of the most dangerous jobs in the world, right? I mean, homicides. On the other hand, there are trafficked women and children. So our colleague, Petra Pearson, has a market design proposal for this. So her proposal is license voluntary sex workers in ways that make sure they're not trafficked women and children and might give them health benefits and health inspections and things like that. And make it a crime to pay for sex for someone who isn't a licensed prostitute. So make it a crime to patronize the unlicensed prostitutes who are likely to be the trafficked women and children. And the idea is to protect the voluntary sex workers who are not protected because they're criminals, and to really reduce the scope for involuntary trafficking of women and children. So I think, you know, your question was, you know, how should you think about things that you find really disturbing and you're thinking of banning. And part of the question is, can you ban them? If you can't effectively ban them, then you might want to think about how to regulate them and cut down the things you really hate.
Neale Mahoney: What do you want younger economists, policy makers, to think about when they're thinking about designing markets, shaping markets, not just modeling them?
Alvin Roth: Markets are human artifacts. They're tools, and we should think about what we want to use them for. And then we should think about are they doing a good job of what we want them to do, and if they're broken, how can we fix them? And market regulation is part of market design. markets need rules that allow them to work well. And so that's what market design is about, and to some extent it's what regulation is about. But of course, not all rules help markets work well. Some rules might have once helped markets work well, but be outdated and didn't keep up with technology. And others might not have been needed, but because they haven't kept up with technology are now needed. And regulation we normally use for the kind of broad brush design done by governments that, you know, one regulation might apply to many markets. But there's also the work that entrepreneurs do. You know, eBay was a market that could come into existence when the internet was born, but Uber had to wait for smartphones and GPS. So sometimes you can have a new market which you might need to regulate. So I think that markets and their design and their regulation and their technologies are co-evolving in ways that we economists need to understand better.
Neale Mahoney: I found this incredibly empowering to think that, you know, we have agency, not just about how we behave in markets, but how we design markets, how we shape markets as entrepreneurs, as policymakers, just as individuals, to better achieve our social, democratic, moral objectives. Thank you so much for this conversation.
Alvin Roth: No, thanks for having me.
Neale Mahoney: It's been a real delight. And I'm very much looking forward to reading your book. Markets are powerful tools, but as Al reminds us, they're not inevitable. They're designed. And designing them well means listening to the people who are affected, understanding moral concerns involved, and recognizing that sometimes the hardest economic questions aren't about prices or incentives, they're about values. I want to thank Al Roth for this conversation and you for joining us. I'm Neale Mahoney, and ECON To Go is where we bring Stanford economics into your everyday life. If you enjoyed this episode, subscribe or follow wherever you get your podcasts. We've got more smart, curious conversations coming your way from the Stanford University campus.