Who Should Decide?

Start Here: Who Gets a Kidney?

More than 109,000 people in the United States are on the national waiting list for an organ transplant, and kidneys are the organ most commonly needed. About 12 people die each day while waiting. More than 49,000 transplants were performed in 2025. There aren’t enough kidneys to go around, so something has to decide who gets one.

That something is not a price. Since 1984, federal law has made it a crime to acquire or transfer a human organ “for valuable consideration” for use in a transplant. Donors can be repaid for costs such as travel, housing, and lost wages, but no one can be paid for the organ itself. Instead, a national network matches kidneys from deceased donors by rules that weigh factors such as blood and tissue type, medical urgency, size, distance, and time spent waiting.

Many people are healthy enough to give a kidney to someone they love but can’t, because the two aren’t a medical match. Economist Alvin Roth saw a way forward. “There is another patient-donor pair who have the same problem in reverse,” he explained in his Nobel lecture. “This is what opens up the possibility of exchange.” Each donor gives to the other pair’s patient. No money changes hands, which matters because, as Roth put it, “you cannot contract on a kidney in the United States.” Roth and his colleagues helped design clearinghouses that find these swaps, including long chains of them. One chain he described had “sixty people in it, thirty nephrectomies and thirty transplants.” In 2012 Roth shared the Nobel Prize in economics with Lloyd Shapley “for the theory of stable allocations and the practice of market design.”

Three Questions Every Society Must Answer

The Choices reading began with scarcity: there isn’t enough of everything for everyone, so choices have to be made. Those choices add up to three big questions that every society must answer, whether it is rich or poor, free or not.

Societies have answered these questions in three broad ways. In a traditional economy, people do things the way they always have. In a command economy, rulers or planners decide. In a market economy, decisions are spread out among millions of people buying and selling. Every real economy mixes all three, and most also rely on a fourth kind of answer: groups of people who make their own rules together. The table compares how each one answers the three questions.

The Trade reading introduced Friedrich Hayek’s point that the knowledge needed to answer these questions is spread across millions of people, in bits that no one person or agency can gather. Prices are one way to pull that knowledge together. Earlier readings in this series built on four ideas about how markets do it:

This reading asks a harder question: when do these four ideas work well, and what do people use when they don’t? The useful comparison is never a real system against a perfect one. It is one real system, with its flaws, against another real system, with its own.

When Markets Fall Short

1 Arthur Pigou: Costs that land on others

In 1890, Alfred Marshall described what economists now call an externality: a cost or benefit that falls on people outside a deal between two others. Arthur Pigou developed the idea in The Economics of Welfare (1920). A factory that pours smoke into the air, as a St. Louis Fed economist puts it, is “shifting some of their production costs to society.” Neighbors pay through health problems and lost enjoyment of the outdoors, even though they never agreed to the deal. Because the factory doesn’t pay those costs, “the free market, left alone, will overproduce pollution.”

Pigou’s answer was to make the polluter face the cost. A tax equal to the harm done to others, now called a Pigovian tax, lets prices carry the missing information. Governments also use regulation, such as requiring certain technologies, though such rules “may not be the most cost-effective or efficient methods” of reaching a goal. The Property Rights reading showed another path from Ronald Coase: when rights are clear and bargaining is cheap, the people involved can often sort out spillovers themselves.

2 Paul Samuelson: Goods no one can be kept from using

Some goods are hard to sell at all. Paul Samuelson described a public good as both nonexcludable, meaning a person can’t be kept from using it, and nonrival, meaning one person’s use doesn’t reduce anyone else’s. National defense and clean air are examples. If no one can be kept from enjoying a good, each person is tempted to let others pay for it. Economists call this the free-rider problem, and it is a main reason governments collect taxes to provide such goods.

WATCH An Introduction to Externalities (Marginal Revolution University)

When Governments Fall Short

3 James Buchanan: Politics without romance

Pointing out that markets fall short doesn’t prove that government will do better. James Buchanan, who won the Nobel Prize in economics in 1986, asked economists to study politics with the same tools they use for markets. Voters, politicians, and officials respond to incentives like everyone else. Buchanan called this view “politics without romance.” Public choice, the field he helped build, “is skeptical that the actions of people in politics are necessarily focused on promoting the public interest.”

One reason is that the benefits of a policy can be concentrated on a few while its costs are spread thinly over many. A small group that gains a lot has every reason to organize and lobby. Millions of people who each lose a few dollars a year have little reason even to learn about the policy. George Stigler, another Nobel winner, went further in 1971: “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” Economists call this regulatory capture. Hayek’s knowledge problem applies here, too: planners face the same limits on what any one group can know.

WATCH Concentrated Benefits and Dispersed Costs (Center for Study of Public Choice)

Beyond Markets and States

4 Elinor Ostrom: People who make their own rules

The Property Rights reading told how Elinor Ostrom challenged the idea that shared resources are doomed to be overused. In her Nobel lecture, she described her work as explaining things “that do not fit in a dichotomous world of ‘the market’ and ‘the state.’”

Her research began with a groundwater basin on the California coast. Water companies, cities, oil firms, and local residents were pumping out more water than rain could replace, and salt water from the ocean was seeping in. Ostrom watched the same people behave very differently “when they meet monthly in a private water association, when they face each other in a courtroom, and when they go to the legislature and eventually to the citizens to sponsor a Special Replenishment District.” None of these settings, she wrote, closely resembled “the standard models of a market or a hierarchy.” The users tackled the problem through many centers of decision-making at once, an arrangement she called polycentric.

Ostrom and her colleagues went on to study forests, fisheries, and irrigation systems around the world. They found that groups who manage shared resources well over long periods tend to share a set of features, which she called design principles.

A later review of more than 100 studies found that about two-thirds confirmed the pattern: lasting systems tended to have most of these features, and failing ones tended not to. Ostrom’s lesson for policy was blunt: “‘One-size-fits-all’ policies are not effective.” A related idea in economics, Wallace Oates’s 1972 decentralization theorem, suggests that public goods should be provided locally when people’s preferences differ, unless there are large savings from providing them centrally or spillovers from doing them locally.

5 The lobster gangs of Maine

Anthropologist James Acheson found these features off the coast of Maine. Lobster-fishing families in each harbor know one another, often over several generations, and have organized into informal groups known as “harbor gangs.” Each gang controls a stretch of ocean along its part of the coast and reserves the best inshore waters for its members. The gangs “encourage compliance with conservation laws and local norms of fishing conduct.” To enforce their claims, they interfere with the traps of outsiders. Cutting an intruder’s traps loose from their buoys was once common.

Over time, alliances of lobster fishers successfully asked the state for new rules that stopped fishing practices that were harming the lobster population, which helped it recover. Maine law now lets the state set up lobster management zones “to facilitate local or regional management.” Licensed lobster fishers in each zone elect a council. After a vote of the zone’s fishers, the council can propose local rules on how many traps each person may fish and what time of day fishing may occur. In Ostrom’s terms, the government recognizes local rule-making and nests it inside a larger system.

What Economics Adds

LISTEN Does Market Failure Justify Government Intervention? (with Michael Munger) and Public Choice and Politics Without Romance (with Mike Munger) on EconTalk, hosted by Russ Roberts, with transcripts

Key Terms in Plain Words

Market economy

An economy where decisions are spread among many buyers and sellers.

Command economy

An economy where rulers or planners decide what, how, and for whom.

Externality

A cost or benefit that falls on people outside a deal.

Pigovian tax

A tax that makes a producer pay for the harm it does to others.

Public good

A good no one can be kept from using, and one person’s use doesn’t reduce another’s.

Free rider

Someone who enjoys a good without helping pay for it.

Common-pool resource

A shared resource, like a fishery, that is hard to fence off and gets used up.

Polycentric

Ostrom’s term for a system with many centers of decision-making.

Public choice

The study of politics using the tools of economics, as Buchanan urged.

Regulatory capture

When regulation ends up serving the industry it is supposed to oversee.

Market design

Building the rules of an exchange, such as Roth’s kidney swaps, to work well.

Repugnant transaction

A trade some people object to on moral grounds, even if both sides agree.