Should economics have fewer taboos? With Alvin Roth

Episode Summary

Executive Summary: Alvin Roth argues economics should be less taboo about markets when they can be designed ethically and efficiently, citing kidney sales, surrogacy, and prediction markets as cases where regulated exchange may outperform bans. He also defends experimental economics, saying ethical concern should focus on design, consent, and social support—not reflexive squeamishness.

Main Topics: How market-friendly should economics be? (Priority: 5/5): Roth places himself at 7.5/10 on marketization, praising markets as coordination devices that improve longevity and welfare, while emphasizing that many markets are matching markets rather than simple commodity markets. Kidney markets and life-saving incentives (Priority: 5/5): He supports a regulated market for living kidney donation, arguing it could save lives, reduce dialysis costs, and be designed to avoid exploitation or unequal access by using government compensation and allocation. Surrogacy, bans, and workarounds (Priority: 4/5): Roth compares legal regimes across Britain, Western Europe, and the U.S., arguing that bans on commercial surrogacy are porous and often create worse outcomes like cross-border arrangements and stateless children. Repugnant transactions and territorial sales (Priority: 3/5): Using Greenland, Alaska, Louisiana, Puerto Rico, and statehood examples, he distinguishes horrifying political rhetoric from the broader question of whether voluntary affiliation changes between territories can ever be legitimate. Gambling markets and regulation (Priority: 4/5): He says smartphone sports betting has intensified addiction risk and created opportunities for corruption and manipulation of play, requiring stronger regulation than legacy gambling rules. Prediction markets vs. insider trading (Priority: 4/5): Roth is relatively unconcerned about insider trading in prediction markets, arguing thick financial markets already enable bigger and harder-to-detect bets, though strategic disclosures could still create military risks. Ethics of experiments in economics (Priority: 5/5): He defends field and social experiments as essential for learning in markets and public policy, while acknowledging concerns about consent, randomization, and whether some settings are too sensitive for experimentation.

Key Arguments: Markets often improve welfare because they solve coordination and matching problems, not just price-setting in commodity markets. A regulated kidney market could be ethical and equitable if compensation comes from the federal government and recipients are allocated without regard to income. The main objections to kidney compensation are equity concerns and possible coercion of vulnerable donors, both of which can be addressed by design. Commercial surrogacy bans rarely eliminate demand; instead they push people into cross-border workarounds and can create legal problems for children. Greenland-style territorial transactions are not identical to selling people; the key issue is whether a population can voluntarily alter political affiliation under lawful procedures. Smartphone sports betting increases addiction and opens up direct athlete-gambler corruption, so the new market needs tighter regulation. Prediction markets are not uniquely concerning for insider trading because financial markets like oil futures or airline stocks already allow larger, less visible bets on information. Economists should not be either too squeamish or not squeamish enough; bans on markets also require social support and can spawn black markets if poorly designed. Randomized experiments in economics are often ethically defensible when they improve policy or market functioning, even if participants do not know every element of the design. Concerns that the economists' Twitter-retweet experiment was zero-sum were overdrawn; better information can improve matching in congested labor markets even if some individuals lose out.

Data Points: Marketization comfort score: 7.5/10 - Roth’s self-rating on comfort with marketization and transactions in a wide range of domains. Kidney-failure spending in the U.S.: $55 billion per year - Mostly spent on dialysis, which Roth cites as a reason a kidney compensation market could save taxpayer money. Potential kidney compensation: $80,000–$100,000 per kidney - Roth’s estimate of a payment level that could be generous and likely above the clearing price. Commercial surrogacy legality in the U.S.: Almost every state - Roth says gestational surrogacy can be paid in nearly all U.S. states, with Louisiana as a likely exception. Economist labor-market experiment treatment: Tweeted twice vs. once - The experiment tested whether additional social-media visibility changed junior economists’ job-market outcomes. Illustrative hiring example: 1 economist - Used to explain that top universities may hire only one person, so information changes who gets hired even if the number of jobs does not change. COVID vaccine trial sample: 40,000 participants - Example of a randomized clinical trial where 20,000 receive vaccine and 20,000 placebo. COVID vaccine trial split: 20,000 / 20,000 - Used to illustrate that participants often do not know whether they are receiving treatment or placebo at the outset.

Pivotal Quotes: "I think we could be very generous because it would save the American healthcare system... a lot of money because dialysis... is also much more expensive than transplants." — Alvin Roth: Explaining why kidney donors could potentially be compensated at high levels while still reducing overall healthcare spending. "What you'd like to see in a well-working market is that the waiting list was not for transplants, but for being able to donate a kidney." — Alvin Roth: Describing his ideal ethical design for a compensated kidney-donation system. "Bans on markets also need social support, and when we ban a market, we're sometimes inadvertently designing the black market that will replace it in the face of the ban." — Alvin Roth: His closing point on why market taboos and prohibitions should be evaluated with attention to unintended consequences.

Implications: The episode argues for replacing moral reflexes with market design: if a taboo market is allowed, regulate it well; if banned, anticipate black markets and workarounds. For policymakers and economists, ethics should focus on outcomes, consent, and equity.