30 Jul 2007  Research & Ideas

Repugnant Markets and How They Get That Way

Repugnance is different in different places and at different times, says Harvard economist Alvin E. Roth in this Q&A. As someone who designs and builds new markets, he marvels at how society decides whether a transaction is "good" or "bad"—even when such transactions are very much alike. Key concepts include:

  • "Repugnant transactions" are transactions that some people don't want other people to engage in.
  • From the point of view of economists, the phenomenon of repugnant transactions can be a serious constraint on markets and market design.
  • When a market is illegal, the versions of it that arise can be quite dangerous. It is difficult to compare how markets operate when they're illegal with what it would be like if they could operate legally.

 

Unfair. Undignified. Inappropriate, unprofessional, distasteful—and most of all, repugnant.

To the wonder and surprise of Alvin E. Roth, a Harvard economist, these harsh words are often hoisted to describe an important task of his: designing and building new markets. As Roth writes in a new working paper, he and fellow economists have found themselves handicapped by a problem just as real as any technological barrier or requirement of incentives and efficiency: the downright distaste that some people feel for particular transactions.

Roth's paper, "Repugnance as a Constraint on Markets," looks at a wide range of practices, legal and illegal, from dwarf tossing to slavery to California's ban on the human consumption of horse meat, and asks how economists can find a common language, if not a common point of view, with the winds of society. According to Roth, "We need to understand better and engage more with the phenomenon of ‘repugnant transactions,' which, I will argue, often serves as an important constraint on markets and market design."

The U.S. market for kidneys, which Roth and colleagues have been central in developing, is one such area of controversy. "Kidney exchange is something we have gotten going in New England and elsewhere that doesn't involve any monetary transfers," Roth explains. "It has not aroused any repugnance at all. We've just gotten legislation through the House and the Senate facilitating a national exchange, with no opposition. But if instead of an exchange, we asked a potential donor ‘How about we pay you $25,000?' that would be against the law.

"That's what caught my interest in repugnance: Here are two things that look similar. One is clearly good, and the other strikes many people as bad.

"As economists," he continues, "we have to understand folk ideas about what we can do in the market better than we do. They're a big issue. And that's not to say that economists are the ones who are necessarily right."

Roth recently elaborated on repugnance for HBS Working Knowledge.

Martha Lagace: How did you arrive at the subject of repugnant markets?

Alvin E. Roth: I started thinking about them while talking with kidney surgeons and learning about all the things they found repugnant. Meanwhile, a group of economists, particularly around Nobel Laureate Gary S. Becker at the University of Chicago, was quite perplexed that we just don't have a market.

As an economist who wants to understand things as they are, I wondered why we don't have some of the markets that economists like. Economists have the point of view that voluntary transactions should always be fine. If two people engage in a voluntary transaction, it must be because they both want to, and it makes them better off. The kinds of things I'm calling repugnant are transactions that some people don't want other people to engage in.

Repugnant is different from, say, disgusting. There are no laws against eating cockroaches in California, because nobody wants to eat cockroaches. The law of supply and demand takes care of that. But the reason there's a law against eating horse meat in California is because some people would like to eat horse meat, and others think that they're doing something repugnant.

That's similarly the story about kidneys: why I can't buy yours, although I could accept it as a gift.

Repugnance is different in different places and at different times. I feel a little bit like a sociologist when I look at these things.

Q: What about the slippery slope?

A: One of the reasons people do not want the selling of kidneys to be legal might be the following. Suppose you don't want to sell your kidney. The standard argument is that if we made selling kidneys legal, you would be just where you are now: You're not selling your kidney currently, and you wouldn't sell it after it became legal to do so. Maybe someone else wants to sell her kidney. Such a law would make her better off.

So let's say that selling your kidney was legal, and you don't want to sell yours. But now you go to get a mortgage. The bank says to you, "Ah, healthy young woman, two kidneys. It's so hard to sell houses these days. Why don't you just check off this box here, if you ever fall behind on your payments?" And the bank adds, "We almost never do this . . . but it allows you our best rate. If you can't check off the box for some obscure personal reason, then your rate is 2 percentage points higher."

If we had allowed that to happen, then you would have been made worse off by our decision to allow kidneys to be legally sold, even though you would not sell your kidney. All of a sudden you are not eligible for the best rate of mortgage, which you were before.

It's interesting that some activities that seem repugnant strike me as very similar to other activities that are not repugnant.

The standard economist argument, which is a good one, is, "That could be a problem, but we can write laws against it. We're going to allow kidneys to be sold for transplantation under carefully regulated circumstances. If your bank ever presents you with a mortgage like that, it's in violation of the National Organ Transplant Act."

So the slippery-slope argument is actually an area of agreement, or at least not outright disagreement, between people who like markets and people who don't. In principle one can say, absolutely, there's a slippery slope, let's be very careful not to fall down it, let's write the laws carefully and amend them when we discover abuses. You can negotiate how to write the laws.

The essential disagreement is between people who think that it would be a good idea and people who think it would be just a terrible thing. Repugnance on its face.

Q: What are some examples of other repugnant markets?

A: Dwarf tossing is a good one because it's so straightforward. Aside from the fact that it captures people's imaginations to know that it's illegal in some places and not in others, I like it because it seems uncomplicated. If you talk about slavery, of course slavery isn't just about whether I can sell you something, it's about whether I can sell you a person. Even economists aren't in favor of it.

Prostitution. One of the reasons prostitution is illegal is straight repugnance. But it also seems to be associated with crime and disease. So objections to prostitution are based on a combination of repugnance and other factors.

The nice thing about dwarf tossing, not that it's a giant social problem anywhere, is that no one thinks it's associated with disease, and if you thought it was associated with injury—of which there is no evidence—you could pass laws requiring the use of a helmet.

It's interesting that some activities that seem repugnant strike me as very similar to other activities that are not repugnant. There is a similar sport to dwarf tossing called wife carrying. Wife carrying does not look dignified at all. The world champions for the last couple of years use what's called the Estonian position, where the wife is upside down and backwards—really quite a funny thing to see. If you thought it was funny to see dwarfs tossed, you might think it was funny to see small women carried this way; and if you thought it was undignified for dwarfs to be tossed, you might very well, particularly if you watch videos of the champions using the Estonian position, think it was undignified for small women to be carried this way. But as near as I can tell, wife carrying is not repugnant anywhere.

The Estonian position in a wife-carrying contest

Q: How do markets that were once legal become outlawed, and vice versa?

A: A market that is now illegal and that might strike many economists as one that shouldn't be illegal, although it should be heavily regulated, is the market for indentured servants. A market like that with asymmetric information—in which one person knows a whole lot more about potential labor conditions and rights than the person on the other end—is obviously subject to lots of abuses. We build up distaste for these things by seeing the abuses.

In the United States in particular, there are all sorts of labor contracts that appear not to be legal. The 13th Amendment to the U.S. Constitution outlaws involuntary servitude. We ruled it out along with slavery. It is true, however, that the United States has a lot of indentured servitude under the radar. If you're an illegal immigrant, you can't go to the police, you don't have any papers, or what papers you have are held by your employer.

Part of the problem in talking about repugnant markets, and this is true with kidneys as well, is that when a market is illegal, the illegal versions of the markets that spring up are pretty bad. So you can't always compare how markets operate when they're illegal with what it would be like if they could operate legally.

Gay marriage. That's an interesting example when you wonder how things go from being so repugnant that they're illegal to not so repugnant that they're legal. Gay marriage became possible through the courts, not through the legislature. Judges decided that the Equal Protection Clause of the Constitution of Massachusetts was violated. And I guess judges are more insulated from popular sentiment than legislators are.

Q: You have been involved in developing a market for kidney exchange. What is the repugnance factor you encounter when you discuss this market?

A: The idea of kidney exchange has become quite common. [Economists] Tayfun Sönmez, Utku Ünver, and I didn't invent the idea, we invented ideas about how to organize it so it would work well.

There is a New England Program for Kidney Exchange that we helped found, there's an Alliance for Paired Donation headquartered in Ohio that we work with, and there are other surgical groups and transplant centers doing kidney exchange that we're not involved with, so it's an idea that is catching on. Actually, the idea is pretty old, but the first kidney exchanges were in this century. The point is, we started off observing that kidney exchange wasn't repugnant because people had written about it. It was a feasible surgical transaction.

But when I first started talking to doctors about a kidney exchange program, I would very quickly at the beginning of the conversation mention that I wasn't going to propose that we buy and sell kidneys—that I knew it was a felony. Instead, I was going to talk to them about something else. One reason I started saying that early on is that I had discovered that if I didn't, after about 5 minutes they would say, "I thought you were going to propose that we buy and sell kidneys, and I was going to tell you we can't, but that's not what you're saying. Could you start over? I wasn't listening; I was poised to answer something else."

And it turns out—this will shock you—doctors don't immediately think about economists as fellow members of the helping professions. People worry when they hear that we are economists that we want them to buy and sell things. But what we were trying to do was get some of the gains from exchange without exciting the repugnance that forbids markets.

One could imagine that a law about kidney sales might come about if the courts decided that it was unreasonable for someone who was dying of kidney disease to be stopped from buying a kidney.

Of course, there already is a market for kidney sales, but it is illegal and dangerous. A lot of abuses happen in the illegal kidney markets. For example, in China they get organs from executed prisoners. They defend it. They say, "You Americans have a death penalty too, you just waste the organs afterward." Some of my surgical colleagues are worried. Even if using organs of executed prisoners is repugnant, it would certainly be even more repugnant to execute prisoners for their organs, instead of using the organs of executed prisoners, which is a different story. And of course that is also complicated by feelings on the death penalty in general. Partly like ideas around involuntary servitude, we think that prisoners volunteering for anything has to be scrutinized very carefully.

Q: Why do economists see markets so differently from civilians?

A: Economists find very few things repugnant. If you and someone else want to engage in a transaction, if it doesn't have externalities—i.e., if it doesn't hurt anyone else—economists tend to find it acceptable. It's not that economists want everything to be allowed. But I think the tendency by and large among economists is to believe that, barring secondary effects that have to be watched out for, voluntary transactions are good. It is hard to know what things are valuable, and letting people figure it out for themselves seems right.

Many non-economists, however, find the idea of repugnant markets quite natural: "There are some things no one should be able to do." And they draw the line.

Think about bride price and dowries. There should be no reason why people who want to get married can't also exchange money. But supposing it became customary. Then I might find I couldn't have afforded to marry my wife because I wouldn't have been able to afford her. Now how about voluntary transactions? I liked her, she liked me, why wouldn't we have been able to get married? Often the bride price doesn't go to the young woman, it goes to her father. The idea of a dowry starts changing expectations and property rights.

When I talk about these things, it's not that the issue is necessarily repugnance. What I want to suggest is that whenever I build a market, it is not at all rare when we have a conversation about how to organize the market that someone will say to me, "You know, you really can't do that, it doesn't seem quite right. It's not repugnant or terrible, it just doesn't seem right." There are folk ideas about how things ought to run. As an economist I'd like to understand them better.

About the author

Martha Lagace is the senior editor of HBS Working Knowledge.