This is the eighth installment of a nine-part series excerpting the chapter on medical care from the new edition of economist Thomas Sowell's "Applied Economics".

IBD Exclusive Series: Thomas Sowell on The Economics of Medical Care

The most stringent of all price controls is permitting no price at all to be charged.

That is the legal situation in the United States and in various other countries, when it comes to people who donate one of their own organs to be transplanted into the body of someone else whose liver, kidneys or other organs are badly malfunctioning. It is illegal in these countries to charge for donating one's organs, though it is legal in some other countries such as Iran or Pakistan.

Here again, we can begin by looking at the effects of price control in general, and then see how that applies in a particular case, such as organ transplants.

The most common effect of laws limiting how high prices will be permitted to go is to reduce the quantity supplied. In the case of organ transplants, the number of Americans on waiting lists vastly exceeds the number of organs available, so that an absolute majority of those people die while waiting to get a new liver, kidney or other organ.

While 25,076 organ transplants were performed in the U.S. in 2003, the number of patients on official waiting lists for organs was more than three times that — 89,012. Both the number of kidney transplants and the number of people on waiting lists have doubled in 15 years, so the gap between the two has been widening. More than 50,000 Americans were on waiting lists for kidneys, while only about 12,000 kidneys were available to be transplanted.

Similar patterns are found in other countries. According to the British Journal of Medical Ethics, 40,000 people in Western Europe were on waiting lists for kidney transplants, but only 10,000 kidneys were available — and nobody knows "how many people fail to make it onto the waiting lists and so disappear from the statistics." Meanwhile, there are an estimated 700,000 patients on dialysis worldwide.

The benefits of organ transplants extend beyond the saving of thousands of lives to a restoration of a level of health and vigor that many have not enjoyed for years:

A successful transplant can provide a patient with a feeling of virtual rebirth and allow a return to a full and productive life. In that regard, organ transplantation stands out as one of the most significant medical advances of the past few decades.

Conversely, delays in getting a transplant can cost the patient suffering and debilitation, and entail large medical costs for such things as kidney dialysis or other expensive treatments for other malfunctioning organs, as well as causing a general physical deterioration that increases the dangers of a transplant operation, if and when an organ eventually does become available.

Over the years, waiting times for organ transplants have grown. Between 1988 and 1997, waiting times for heart transplants in the U.S. nearly doubled. Between 1988 and 1995, median waiting times in the U.S. for a kidney transplant increased from just over a year to more than 2 1/2 years — and by 2000, the waiting time exceeded three years.

Organs may be transplanted from either living people or from the bodies of people who have recently died. For kidneys, for example, more than twice as many transplants are from the dead as from the living. For liver transplants, the ratio of postmortem transplants is several times as high as transplants from living donors. Still, more than 6,000 organ transplants from living people were performed in the U.S. in 2006.

Obviously, the cost of a transplant from a living person includes the organ donor's pain, risk and lost time from work while recuperating, but obviously none of these costs apply when organs are transplanted postmortem. Just as people while alive can legally grant permission to transplant their organs after death free of charge, so they could charge for granting such permission if the law did not forbid that.

If organs were allowed to be sold by their donors, what would be the consequences? What are the consequences today, where organ sales are illegal? How much would an organ cost in a free market and how would organs be allocated in such a market, compared to how they are allocated today?

On the most basic economic principles, it should be expected that more organs would be supplied at some price than at no price. How high that price would have to be depends on the value of the organ to the potential donor, as well as the risks of the operation and the increased risk to a kidney donor if, for example, the remaining kidney were to malfunction at some future time.

For people who are paid while living for an organ to be transplanted after death, even a heart has no postmortem value to the donor, nor would the financial costs or medical risks of a transplant be a deterrent.

Where parents or other family members are allowed to sell the organs of someone who died unexpectedly, there may be psychic costs for some upon realizing that a loved one's body is to be cut up or there may be psychic benefits in knowing that their loved one is passing on the gift of life to another human being.

It is unnecessary for third parties to weigh the balance, since each individual is different and all can make their own decisions on such personal matters, as can living organ donors.

Current prices paid for organ transplants, in countries where paying is legal, provide only the most general and potentially misleading idea of what such prices would be in a free market. Given the many countries in which organ sales are illegal, that illegality restricts the world supply, causing prices to be higher than otherwise in those countries where such transplants are legal.

Where organ transplant sales take place despite being illegal, the price paid must be higher than the free-market price, as with all black markets, for the risks of the illegality to seller or broker must also be compensated, for this activity to continue.

Perhaps the highest price of all for illegal organ transplants is the absence of the quality of medical care and organ screening that would be expected if the operation took place under normal and legal conditions. The Economist magazine reports:

Ailing, rich patients are buying kidneys from the poor and desperate in burgeoning black markets. One bigwig broker may soon stand trial in South Africa . . . clandestine kidney-sellers get little medical follow-up, buyers often catch hepatitis or HIV, and both endure the consequences of slap-dash surgery.

It is necessary to distinguish the financial costs of organ transplants from the medical costs and risks — and to distinguish both these inherent costs of the transplanting and its aftermath from the costs created by its illegality.

As things stand, the price paid to organ donors is far less than the money collected by brokers who arrange these transplants. Forbes magazine estimated the markup of Internet organ transplant brokers as "between 60% and 400% over costs." These kinds of markups can seldom survive in an open and competitive market.

A living donor in Iran, where organ sales are legal, "expects to get between $3,000 and $4,000 for one of his kidneys," according to the Economist. On the other hand, prices charged by an Internet broker in California are considerably higher, according to Forbes:

His customers face certain death if their diseased organs aren't quickly swapped out. They find him on the Internet; his stated fee — $140,000 for a kidney and $290,000 for a heart, liver, or lung — includes hospital and surgeon charges, and flights and accommodation for a fellow traveler, such as a nurse or spouse.

Similar amounts were charged by another organ transplant broker in Taiwan, where two options were offered — "a liver transplant at the Shanghai International Transplant Center for $120,000 or an $80,000 version at a no-frills provincial hospital in Nanjing." This was before selling organ transplants was banned in China in 2007.

The international flight for two offered by the California organ broker is an expense made necessary by the illegality of paid organ transplants in the U.S. and the desire of patients to have someone such as a family member with them at a trying time.

Moreover, the cost of the operation falls wholly on the patient only because its illegality means that insurance cannot cover it. Medical risks are also higher than if the operation were performed under normal conditions, according to the Economist:

As long as they receive decent after-care, kidney donors suffer only the tiniest increase in their own risk of dying of kidney disease. And transplants make economic sense: The cost of one kidney operation and a lifetime's supply of anti-rejection drugs equals that of three years' dialysis. Kidneys donated by a living person last for a median 22 years in another body; when they are taken from a fresh corpse, the figure is 14 years.

Since many, if not most, people who need an organ transplant are no longer young, 22 years or even 14 years may often be enough to allow them to live out a normal life span.

While it is reasonable to expect the supply of organs to be transplanted to increase if payments to donors would become legal, that still leaves the question of how much would the supply increase — and how much would it have to increase in order to make a dent in the huge backlog of people waiting for organ transplants.

The Economist estimates that it would take less than 1% of healthy Americans from ages 19 to 65 to part with one kidney to eliminate the waiting list on which thousands of patients die each year.

Currently the rationing of donated organs for transplanting is handled by bureaucracies set up for that purpose, applying such arbitrary rules as they choose, based on whatever notions of "fairness" they happen to have, and dispensing such special favors as they choose to whatever individuals they choose, such as Gov. Robert Casey of Pennsylvania, who in 1993 received a heart and liver transplant ahead of others who had been on the waiting list much longer, or former baseball star Mickey Mantle, who received a liver transplant after a relatively brief time on a waiting list.

Not surprisingly, these bureaucracies oppose free markets that would render them superfluous and deprive them of power and importance. Like other bureaucracies, organ transplant organizations tend to create restrictive rules and paperwork burdens in complying with those rules.

In 2007, the American Society of Transplant Surgeons responded to proposed new restrictions by one of these bureaucracies, the United Network for Organ Sharing by saying: "Dictating the practice of medicine and surgery is not the role of (UNOS), let alone in the best interests of patients."

A surgeon at the Yale medical school put it more bluntly: "You don't see my patient, and you don't see my donor, and you're going to tell me who I can and can't use?"

But so long as these organizations control a supply of desperately needed organs, they will have arbitrary powers, whether they have corresponding knowledge or not.

As for the cost of a transplant under legal circumstances and in a free market, a study by economists Gary Becker of the University of Chicago and Julio Jorge Elias of the State University of New York at Buffalo concludes that "monetary incentives could increase the supply of organs for transplant sufficiently to eliminate the large queues in the organ market, and it would do so while increasing the overall cost of transplant surgery by no more than about 12%."

Whether under legal or illegal circumstances, the full cost of an organ transplant includes not only the price paid for the organ itself — which has procurement costs, even when the organ is donated without charge — but also the cost of the operation and the subsequent medical costs for both the donor and the recipient after the operation, including continuing costs for medications for the recipient to protect the donated organ from being attacked by the recipient's immune system.

This is a very expensive process, but the cost of purchasing the organ itself in a legal transaction — estimated by Becker and Elias at $15,200 for a kidney and $37,600 for a liver — is in the range of what people pay for automobiles, and would add only modestly to the cost of the transplant process.

Moreover, the cost of not making the transplant is not cheap: Kidney dialysis costs more than $66,000 a year and cannot produce the same benefits as a kidney transplant, besides being an annually repeated cost, as distinguished from a one-time cost for a kidney transplant operation.

Professors Becker and Elias estimate the total cost of the whole organ transplant process at $210,000 for a kidney and $392,000 for a liver. While these are huge sums of money for an individual, they are in the range of what is ordinarily paid for a house in a moderately priced housing market.

Since Medicare already covers the annual cost of kidney dialysis and financing can be arranged for buying homes, these are not insurmountable costs for most people and could be covered by insurance if organ purchases were legal. For those too poor to handle such costs through insurance, private or government agencies could take care of such individuals.

In any case, the costs of the organ purchases would not be the main costs of the organ transplant process. It has been estimated by an organ transplant specialist that the savings from reductions in the use of kidney dialysis by the use of kidney transplants could on net balance "reduce government expenditures significantly."

In short, price controls — in this case, making sales of organs illegal at any price — have relatively little effect on the total cost of an organ transplant, but can have serious effects in reducing the number of organs available to be transplanted.

Since there has long been a program of legal organ sales in Iran, the effect of legalizing the sale of organs is not just a matter of speculation. Eleven years after the legalization of organ sales in Iran, there was no longer a waiting list for kidney transplants.

Objections to the sale of organs center on the fact that poor people are more likely to sell an organ, including people "under desperate and trying circumstances," as a noted ethicist put it. But are their circumstances any less desperate when they are forbidden to seek one of the very few ways available to them to escape their desperation and better their lives?

Since people on waiting lists for transplants are also in desperate circumstances, to have the options of both sets of people reduced, and their choices overridden, by people who are healthy and prosperous seems painfully ironic, as if the squeamishness of third parties should be decisive.

Sometimes the argument is made that it is wrong to have a human organ reduced to the level of a "commodity," as if avoiding a word is worth losing a life. Moreover, a purchase from a stranger avoids the documented emotional pressures on both donor and recipient when they know each other.

Monday: How misconceptions about prices lead to counterproductive consequences in medical care.

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From the book "Applied Economics"  by Thomas Sowell. Excerpted by arrangement with Basic Books, a member of the Perseus Books Group. Copyright © 2009.