The recent conviction of the lawyer lobbyist Jack Abramoff has focused public attention on alleged bribes of Congressmen to enact legislation, and influence regulatory action, favorable to Indian casinos represented by Abramoff. What has received little attention is the underlying cause of public corruption, which often and in this case simply is bad laws.
Federal law treats Indian tribes as quasi-sovereigns, like the states, and gives them various privileges in using their lands (i.e., Indian reservations) that are denied to the residents of the states in which the reservations are located. In particular, it is much easier in most states for an Indian tribe to have a casino on its reservation than for any other landowner in the state to have a casino. As a result, Indian casinos are lucrative, especially when they are located near cities; in effect, Indian reservations have locational monopolies in the gambling industry. There are several hundred Indian casinos, and their annual revenues are close to $20 billion.
The profitability of Indian casinos has given rise to classic "rent-seeking" activities, that is, efforts to appropriate profits. These efforts take such forms as seeking federal recognition as an Indian tribe, seeking regulatory approval for a casino, and seeking a ban on the operation of non-Indian casinos; counterefforts include lobbying for relaxing state laws against gambling, laws that bolster the Indian casinos. All these efforts involve legislative or regulatory activity, creating a rich field for lobbying legislators, who exert direct and indirect control over regulation. Lobbying is not merely persuasion; it is also providing campaign contributions to legislators, and sometimes personal gifts (meals, travel, etc.), in anticipation of favorable treatment by the legislators to whom the contributions or gifts (or both) are given. The amounts, and number of legislators, involved are very great because of the very large profits that casinos generate.
But wait: why should a casino be profitable? A casino is just a retail entertainment establishment, like a restaurant, bar, nightclub, supermarket, or game room. The investment involved in a casino is modest, consisting of little more than a building plus gambling tables, roulette wheels, and one-armed bandits. Why should casinos be more profitable than grocery stores? And we know that grocery stores are not sufficiently profitable to generate heavy campaign contributions and gifts to legislators.
The answer is that gambling is a regulated industry. More particularly, entry is limited by government. This is not just a matter of requiring a license available to anyone able to pay a modest fee and perhaps meet some minimum legal and financial qualifications. In many states entry requires as a practical matter the entrant to prove that it is a bona fide Indian tribe, or, if it is not Indian, to convince a state legislature to permit non-Indians to compete.
The huge profits of gambling and the resulting temptations to corruption, both the quasi-corruption of large campaign contributions and the outright corruption of bribes, could be eliminated at a stroke by abolishing the limitations of entry into gambling. Then entry into the gambling business would proceed until the price of gambling fell to the cost of operating a gambling business. Of course, there would be more gambling if the price were lower, hence more gambling addiction (a real, although obviously a psychological rather than physical addiction--but so is addiction to cocaine), hence more bankruptcies due to gambling, and more broken marriages due to one spouse being a compulsive gambler. There would also be more competition for state lotteries, which would decrease state revenues. If these are deemed serious concerns, they can be dealt with by taxing gambling at rates high enough to limit demand without being so high as to create a black market, in much the same way that liquor and cigarettes are heavily taxed but not so heavily taxed that a black market emerges. Since the revenues from the taxes would go to government, there would no temptation for rent-seeking or corruption.
An incidental benefit would be to end privileges for Indians in a particularly insidious form. The rationale of affirmative action, which seems to me to have at least modest merit, is that it facilitates the integration of disadvantaged group into the larger American community; it promotes assimilation. But because Indian privileges are tied to tribal membership and residence on a reservation, it discourages integration and assimilation. Despite the profits generated by Indian casinos--and some of those profits are dissipated in rent-seeking activities (which are not costless), and some in the operation of the casinos, which is primarily by non-Indian companies--poverty, alcoholism, and violent continue to be disproportionately frequent on Indian reservations. The exit option probably deprives the reservations of many of their most promising residents, since an Indian who leaves the reservation, as he or she is free to do, is immediately entitled to all rights of a U.S. and state citizen. Would it be a boon to black people in the United States if they were permitted to live on black-only reservations on which they would be allowed to establish casinos? That would be a preposterous suggestion. It is equally preposterous when "Indian" is substituted for "black."
The Indian tribes do own the reservations, and if their members want to continue living there, that is their right. But there is no reason why they should have any privileges denied to people in the same state, whether Indian or not, who do not live on reservations.
The American government‚Äôs treatment of its native population has often been mean and has been consistently erratic. But little in the long history of relations with American Indians is as peculiar as the granting of Indian tribes a privileged position with regard to the approval of gambling casinos. In some states, Indian tribes are essentially the only ones allowed to have casino licenses, while other states give priority to applications from tribes.
Serious discussions in the past of compensation of American Indians for mistreatment of their ancestors considered head start type programs, retraining, intensive medical care and counseling, and cash gifts. Licenses to run casinos? Too absurd to be discussed, yet that absurdity became a reality during the past couple of decades.
To be sure, as Posner indicates, such licenses are valuable: revenue from Indian casinos amount to somewhere between $15 and $20 billion. This is why certain tribes, such as those with licenses for the Foxwood and Mohegan Sun Casinos in Connecticut, have received considerable wealth from their privileged position with regard to getting casino licenses. Gambling licenses are valuable when they are limited in number because Americans and citizens of many other nations have demonstrated throughout history a great desire to gamble, whether or not gambling was legal. So state-run lotteries-essentially the only lotteries that are legal in the United States and other countries-produce about $20 billion of annual revenue for American state governments. These states collect about half of this revenue as taxes. Casino licenses to private companies in Los Vegas and elsewhere that allow widespread gambling typically sell for a lot because of gambling's popularity and the restrictions on competition.
I agree with Posner that the case for government management and entry restrictions in the gambling industry is weak and unpersuasive. Even if one opposes gambling because it is sometimes addictive or for other reasons, a better approach than the present system would be to allow free entry into the casino industry and other gambling activities. It is more effective to allow entry and tax sales or profits made by privately run gambling establishments. The rates of taxation would be determined by revenue considerations and attitudes toward gambling.
Of course, some forms of gambling would move underground if tax rates became high enough. Michael Grossman of CUNY, among others, has shown, for example, that there is considerable smuggling of cigarettes into cities and states with high cigarette tax rates from states with low rates. However, underground gambling could be considerably reduced if governments were willing to apprehend perpetrators and punish them sufficiently.
Enforcement is more difficult against the most important trend in gambling; namely, the rapid growth in the quantity and variety of gambling over the internet. For example, it will soon be possible, if not possible already, to bet in real time on the outcome of particular pitches in baseball, or individual plays in football. Internet gambling is particularly difficult to regulate because it can originate anywhere, including at sea, and can relocate easily when authorities try to close down a site. So the internet is in the process of making gambling a global and highly competitive industry that can readily evade taxation.
But to come back to casinos and tribal privileges, why should subsidies to American Indians be tied to casino gambling? There seems to be at best a weak connection between which tribes gain the most from these subsidies, and their poverty, disease burden, and how much they have suffered from discrimination. On the contrary, tribes benefit the most when they are sufficiently close to large and well off populations, criteria that are likely to mean that their members do relatively well anyway. This method of distributing benefits to Indians seems inconsistent with any reasonable criteria of which tribes should receive larger subsidies or other benefits.
So my conclusion is that the special casino privileges granted to tribes is a continuation of the long history of senseless policies by United States governments toward American Indians.
These are interesting comments; let me reply to a few of them.
One comment suggests plausibly that while some people are reluctant to opt in to organ donation for fear that doctors will be more inclined to pronounce them dead (opting in increases one's value dead!), they would be equally reluctant to opt out because it would identify them as selfish or fearful. Another comment suggests also plausibly that people don't like to think about death and so they will leave blank a question about donating their organs, whatever the question says.
One comment suggests that organ donors be given priority in receipt of organs. That is worth considering as a means of encouraging organ donation, but it has a drawback: people with kidney or lung problems would be quick to sign up as donors! Yet if they died, their organs would not be usable, because diseased, for transplants. So people wanting to sign up as donors would have to be screened before being given the priority; and just the bother of screening would reduce the number of donors, even healthy ones who would sign up if assured of priority.
A physician comments that one problem with a market solution is that it will result in some substitution of the organs of living persons for the organs of cadavers, and the operation poses some risk to the (living) donor and also deprives him of an organ that he may need in the future. So this is an argument for opt in.
Finally, regarding the prohibition of other forms of commodification, such as the gladiatorial contest, one comment sensibly points out that some at least of these prohibitions may have anticompetitive origins: if you would like to be a boxer and think you would be good at it, you might want boxing gloves to be required, lest you lose some or all of your market to fighters less skillful than you but willing to fight each other without gloves.
There were about 50,000 persons on the waiting list for kidney transplants in the United States in the year 2000, but only about 15,000 kidney transplant operations were performed. This implies an average wait of almost four years before a person on the waiting list could receive a kidney transplant. The cumulative gap between demand and supply for livers was over 10,000, which implies an average wait for a liver transplant of a couple of years.
In 2000, almost 3000 persons died while waiting for a kidney transplant, and half that number died while waiting for a liver transplant. Many also died in other countries while on the queue waiting for an organ transplant. Some of these people would have died anyway from other causes, but there is little doubt that most died too early because they were unable to replace their defective organs quickly enough.
If altruism were sufficiently powerful, the supply of organs would be large enough to satisfy demand, and there would be no need to change the present system. But this is not the case in any country that does a significant number of transplants. While the per capita number of organs donated has grown over time, demand has grown even faster. As a result, the length of the queue for organ transplants has grown significantly over time in most countries, despite exhortations and other attempts to encourage greater giving of organs.
In recent years the US has taken several steps to improve the allocation of available organs among those needing them, such as giving greater priority to those who could benefit the most. These steps have helped, but they have not stopped the queues from growing, nor prevented large numbers of persons from dying while waiting for transplants. Some countries use an "opt out" system for organs, which means that cadaveric organs can be used for transplants unless persons who died had indicated that they did not want their organs to be so used. A PhD thesis in progress by Sebastien Gay at Chicago shows that opt out systems may yield somewhat more organs for transplants than the "opt in" systems used by the US and many other nations, but they do not eliminate the long queues for transplants.
To an economist, the major reason for the imbalance between demand and supply of organs is that the United States and practically all other countries forbid the purchase and sale of organs. This means that under present laws, people give their organs to be used after they die, or with kidneys and livers also while they are alive, only out of altruism and similar motives. In fact, practically all transplants of kidneys and livers with live donors are from one family member to another member. With live liver transplants, only a portion of the liver of a donor is use, and this grows over time in the donee, while the remaining portion regenerates over time in the donor.
If laws were changed so that organs could be purchased and sold, some people would give not out of altruism, but for the financial gain. The result would be an increased supply of organs. In a free market, the prices of organs for transplants would settle at the levels that would eliminate the excess demand for each type of organ. In a paper on the potential of markets for live organ donations, Julio Elias of the University of Buffalo and I estimate that the going price for live transplants would be about $15,000 for kidneys and about $35,000 for livers. We recognize, however, that the data are too limited to be confident that these numbers would be close to equilibrium prices that equate supply and demand-they may be too high or too low. But even if our estimates were only half the actual equilibrium prices, the effect on the total cost of transplants would not be huge since current costs for live transplants in the US are in the range of $100,000 for kidney transplants and $175,000 for liver transplants.
An open market in organs would sharply curtail the present black market where some persons in need of transplants have them in poorer countries like Turkey where enforcement against selling organs is slack. Since the quality of the surgeons and hospitals in these countries is much lower than in advanced countries, this often greatly reduces the quality of the organs used and how well they are matched to the organ types of recipients.
Still, despite these strong arguments in favor of allowing commercial markets in organs, I do not expect such markets to be permitted any time in the near future because the opposition is fierce. Some critics simply dismiss organ markets as immoral "commodification" of body parts. More thoughtful critics suggest that allowing organs to be bought and sold might actually reduce the total number of organs available for transplants because they claim it would sufficiently lower the number of organs donated from altruistic motives to dominate the increase due to those sold commercially. That scenario, however, is extremely unlikely since presently only a small fraction of potentially useable organs are available for transplants. Compensating persons either for allowing their organs to be used after their death, or for kidneys and livers to be used while they are alive, would enormously widen the scope of the potential organ market.
Another set of critics agree with me that the effect on the total supply of organs from allowing them to be purchased and sold would be large and positive, but they object to markets because of a belief that the commercially-motivated part of the organ supply would mainly come from the poor. In effect, they believe the poor would be induced to sell their organs to the middle classes and the rich. It is hard to see any reasons to complain if organs of poor persons were sold with their permission after they died, and the proceeds went as bequests to their parents or children. The complaints would be louder if, for example, mainly poor persons sold one of their kidneys for live kidney transplants, but why would poor donors be better off if this option were taken away from them? If so desired, a quota could be placed on the fraction of organs that could be supplied by persons with incomes below a certain level, but would that improve the welfare of poor persons?
Moreover, it is far from certain that a dominant fraction of the organs would come from the poor in a free market. Many of the organs used for live liver or kidney transplants are still likely to be supplied by relatives. In addition, many middle class persons would be willing to have their organs sold after they died if the proceeds went to children, parents, and other relatives. Although this is not an exact analogy, predictions that a voluntary army would be filled mainly with poor persons have turned out to be wrong. Many of the poor do not have the education and other qualifications to be acceptable to the armed forces. In the same way, many poor persons in the US would have organs that would not be acceptable in a market system because of organ damage due to drug use or various diseases.
Still another criticism of markets in organs is that people would be kidnapped for their organs, and that totalitarian governments would sell organs of prisoners. This would happen, but not likely on a significant scale since the source of organs offered for sale could be determined in most cases without great difficulty.
A criticism particularly of a commercial market for live transplants is that some persons would act impulsively out of short run financial needs, and that they would regret their decision to sell a kidney or allow their liver to be used for a transplant if they had taken more time. I do not know how important such impulsive behavior would be, but it could be sharply reduced by having a month or longer cooling off waiting period between the time someone agrees to supply an organ and the time it can be used. They would be allowed to change their mind during the interim.
Many of the arguments against the sale of organs indirectly stem from an influential book in 1971by the British social scientist Richard Titmuss, The Gift Relationship: From Human Blood to Social Policy. He argues against allowing blood to be sold for transfusions, and compares the British system, which did not allow the purchase of blood, with the American system, which did allow its purchase. Titmuss basically ignored that the American system in fact was getting more blood per capita than the British system. Instead, he concentrated on the quality of the blood. Since a significant fraction of the American blood came from individuals with hepatitis and other diseases that could not be screened out, the blood given under the British system tended to be healthier. In the absence of effective screening techniques, perhaps shutting down the commercial market was an effective way then to improve blood quality.
But that is no longer the case as highly effective methods have since been developed to determine whether blood is contaminated with various types of hepatitis, the HIV virus, and other transmittable diseases. Under present screening technology, a market in blood yields much more blood, and with enough diligence its quality can be maintained at a high level.
My conclusion is that markets in organs are the best available way to enable persons with defective organs to get transplants much more quickly than under the present system. I do not find compelling the arguments against allowing the sale of organs, especially when weighed against the number of lives that would be saved by the increased supply stimulated by financial incentives.
The case for organ sales argued by Becker is compelling. The shortages, queuing, black market, cumbersome nonmarket allocation schemes, and quality problems that he describes are the classic symptoms of price controls: in this case a zero price limit for the sale of an organ.
I have just a few brief thoughts to add.
A puzzle is that "opt out" systems, used for example in France, whereby cadaver organs are automatically available for harvesting for transplant purposes unless an individual indicates (for example when receiving his driver‚Äôs license) that he doesn't want that, yield a significant increase in donations compared to our "opt in" ystem. The cost of opting out is trivial; why then could a shift from opt in to opt out have any significant effect? Yet the Abadie and Gay study that Becker cites indicates, after correcting for other factors, that an opt out ("presumed consent") system increases cadaver donations by 25 to 30 percent. (In later work, Gay has reduced this estimate.) As the authors point out, however, an increase in cadaver donations would presumably reduce the number of donations from living people, so the net effect on donations is uncertain. As the authors also realize (and attempt to correct for, while recognizing the difficulty of succeeding in the attempt), the adoption of an opt-out system may reflect, rather than cause, a propensity to donate organs.
One possible reason the weak default rule appears to have a significant effect is public ignorance. The probability that one's organs will be harvested for use in transplantation must be very slight--so slight that it doesn't pay to think much about whether one wants to participate in such a program. When the consequences of making a "correct" decision are slight, ignorance is rational, and therefore one expects default rules to have their greatest effect on behavior when people are ignorant of the rule and therefore do not try to take advantage of the opportunity to opt out of it. In this regard, it is perhaps significant that the countries with high rates of organ donation tend also to be countries with abnormally high traffic fatalities.
Becker mentions that in an effort to minimize the bad effects of the shortage of organs for transplantation, the U.S. government has given priority to the patients who would benefit from the transplant the most, as determined by medical personnel. This is an ambiguous and questionable criterion. The patient who is deemed to benefit the most from a transplant might be someone who was in such poor health that the transplant would merely prolong his life by a few months, whereas another patient, who was in better health, might gain added years from a transplant but without one would die soon--sooner than the unhealty patient, who might therefore be thought the one who would benefit the most from the transplant.
The legal ban on the sale of organs is part of a broader social policy of limiting "commodification," or propertization, of many valuable goods and services: or in other words of limiting the scope of the free market. Among such limitations that command essentially universal assent in our society: people may not agree to engage in gladiatorial contests in which they fight for the death, to sell themselves into slavery, to agree to have their knees broken if they default on a loan, to buy certain mind-altering drugs, to buy or sell sex, or to sell their parental rights. The grounds that are offered for these various limitations on the free market often have a certain plausibility, but do not seem adequate to explain the revulsion that the idea of the prohibited transactions arouse in most people. The transactions may have third-party effects or be the product of ignorance, shortsightedness, or lack of self-control, but this is true of many transactions that are permitted, such as drinking alcohol and gambling. It seems that the prohibited transactions are prohibited because they are highly offensive to nonparticipants; why they are highly offensive remains to be explained.
One form of organ commodification that remains to be considered is an enforceable contract to bequeath one's organs upon death to an organ depositary. Then the donor would receive money up front without having to give up his organ until death. The price would undoubtedly be low. The problem is enforcement: there would need to be a mechanism by which to inform the depositary promptly of the donor's death. But this problem should not be insuperable; the name and address of the depositary could be indicated on the donor's driver's license or (together with the donor's name) on some central registry to which police and paramedics would have access. Moreover, the existence of such a depositary is probably presumed by any market system in organs; one would not expect the patient to be negotiating directly with a potential donor, rather than dealing with an intermediary.
Response on Capital Punishment-BECKER
I will not go over the same ground again, but I have a few responses to the comments on my latest capital punishment posting.
Many of you raised again the issue of whether it is possible to determine whether capital punishment deters murders. The studies have been very sophisticated, and have tried to account for most of the factors raised in various comments. The studies are certainly far more sophisticated than simply correlating the murder rate with whether or not capital punishment is used. Still, I have said in both postings that the data are limited, and so it is not possible to say with great confidence that capital punishment deters. But I must add that while I do believe it deters, I do not assume that all murderers would be deterred, or that all think about the punishment consequences when committing murder. Public policies in all areas only need that a sufficient number of persons respond to the incentives created by the policies.
I mainly asked in my two postings: if capital punishment were known to reduce significantly the number of murders, can someone opposed to the government taking lives remain opposed? I argued no. I was pleased to receive this week from my colleague Cass Sunstein an article that he and Adrian Vermuele will publish shortly. They argue in much greater detail than I did that a government that refuses to use capital punishment when it would significantly reduce the number of murders is indirectly taking the lives of those persons who would not be murdered had such punishment been used.
In response to comments about the effect of capital punishment on the behavior of murderers I have already recognized that ‚ÄúOne complication is that capital punishment may make a murderer fight harder to avoid being captured, which could lead to more deaths. That argument has to be weighed in judging the case for capital punishment‚Äù. Some of you repeated that argument in other words, but if true it would imply that capital punishment does not deter murders and may increase them. We come back to the deterrence question again.
The National Academy of Science study is old, of modest quality, and far from definitive. We mentioned, as do Sunstein and Vermuele, recent studies using new data that also suggest a big deterrent effect of capital punishment. But I repeat that I do not want to oversell the strength of the evidence on deterrence.
In response to Eric Rasmussen, I would argue that murderers utility should be counted, although Eric as you know, George Stigler and I differed on this issue in publications more than 35 years ago. On the embezzlement issue, to me the marginal deterrence argument, and that embezzlements are partly just financial transfers among persons, along with other arguments, makes me opposed to using capital punishment against embezzlers, or against persons committing similar financial crimes.