THE MARKET FOR BABIES

Sonam Pelden

• Couples who are unable to conceive their own children have sought the help of…

1. Fertility Treatments2. Surrogate Facilities3. Adoption Centers• In 2003…1. 41,000 children in the United States were

born through assisted reproduction2. 6,000 were carried by surrogates3. 21,616 children were adopted

Ban on Baby Selling

Baby Selling: Relinquishment of parental rights for monetary compensation

“Babies are too priceless to ever be bought and sold”

Throughout the world Baby selling is formally prohibited

…But throughout the world Babies are bought and sold everyday

Baby Market Transaction

• Claim non-commercial• highlighting instead their willingness and

ability to help infertile couples realize their dreams of starting a family

• …But large sums of money change hands and transaction takes place between consumers (prospective parents), middlemen (Baby market intermediaries) and suppliers (Baby suppliers)

Distinct Market Attributes

Enormous controversies and raises public policy issues

Demand in the baby market is price insensitive

no suitable substitute products Baby Market consumers behave like

desperate parents, rather than rational consumers

Defining the Baby Market

• Industry Segmentation1. Artificial Reproductive Technologies (ART)2. Surrogacy3. Adoption• Services and stages of production

provided by these sectors can differ from one another, but they all share the common goal of providing a child to an infertile couple.

ART: The Business of Assisted Reproduction

Fertility Treatment constitute $3 billion industry, serving 1 million customers every year, in 428 clinics

Services include medical advice, fertility testing , In-Vitro Fertilization (IVF) and Preimplantation Genetic Diagnosis (PGD)

$12,400 per IVF cycle, total fees of as much as $100,000 before couples conceive or give up

Surrogacy: Gift of Life or Ultimate Outsourcing?

Gestational surrogacy Prohibited in Canada, UK and Japan Uncertainty over legal enforceability in

the US Legalized in India Surrogacy cost in the US: $150,000 Surrogacy cost in India: $10,000 Indian surrogate industry has grown to

an estimated $500 million

Adoption: Useful Labor, Priceless Treasure

i. State Run Public Adoption• Characterized by minority, older and

special needs children• Adoption fees below $2,500i. Private Adoption Agencies (Domestic

and International)• Characterized by healthy, white infants• Adoption fees from $10,000 to $40,000

Price & Product Differentiation• Demand for particular genetic preferences

has led to highly differentiated pricing 1. ART: donors with rare or desired traits

demand higher prices2. Surrogacy: Gestational surrogacy

compensation vary within a narrow range 3. Adoption: Price differentiated based on

race, age, special needs and other consumer preferences

Economic or Altruistic motive? Baby Market sectors are usually 1. Affiliated with non-profit institutions2. Highlight that profit seeking and market

forces are secondary considerationsBut Engage in elaborate marketing efforts 1. Hire marketing consultants2. Advertisements on billboards, TV,

newspapers…3. Shared risk and Money-back guarantee

programs

Defining the ‘Ban’ on Baby Selling

• Prohibition of direct transaction of babies and baby making components between prospective parents and baby market suppliers

• Legal restriction on market access by suppliers

• Enhancing the role of baby market intermediaries

• Fees, donations and reimbursements take the place of purchase price

The Role of Baby Market Intermediaries

Baby market participants are not repeat players, when buyers and sellers seek each other out:

• severe information disparities• High search cost Intermediaries capture gains from trade by;1. Centralizing the search function2. Reducing risk and information asymmetries 3. Certifying the quality of the goods4. Monitoring warranties and contract terms

The Institutional Framework

Large Profit flows for Baby Market Intermediaries

1. One-sided legal restriction that limit compensation to Baby Market Suppliers

2. Price fixing agreements in the baby input market

3. Legal uncertainty regarding enforceability of surrogacy contracts and restraints on surrogate compensation

4. Adoption regulation and licensing

Baby Selling Bans as Rent Seeking

Baby Market Intermediaries attempt to harness the state’s power to extract private benefits under the guise of public-interest regulation

Asymmetric Pricing Restriction limits amounts paid to baby suppliers, while allowing baby market intermediaries a free hand in setting the price charged to prospective parents

Traditional Oligopsony Model Baby Market Characterized by small number of

buyers (Intermediaries) and large number of sellers (Suppliers of baby and baby making components)

Capping input prices reduces the available supply for both Baby market intermediaries and consumers.

Baby Market Intermediaries accept reduced access to inputs in exchange for lower purchase price

Oligopsony power produces inefficient supply levels

Cartel Power

Legal rules in the Baby Market decrease the private costs of cartel formation and enforcement and of policing market entry

Anti-competitive nature of this institutional framework rarely elicits comment or controversy, because of the persistent dialogue of supplier altruism and donation

Baby Market Intermediary: Consequences

1. Independent entry into the baby market becomes less attractive for many baby market suppliers

2. Inefficiently low supply and high consumer prices

3. Distributional concerns stemming from the distorted division of profit between baby market intermediary and supplier

What about a free and open market for Babies?

Free and Open Market for Babies?

1. Higher supply of Babies2. Newborns of higher quality3. Lower cost of acquiring children4. Low barriers to entry, and enormous

difficulties in cartelization5. Reduced number of Foster care children6. Weaker roles of baby market

intermediaries

Free Market Objections

1. ‘Good’ babies may drive out the ‘bad’2. Supplier incentive to withhold accurate

information3. Higher total population4. Encourage genetic breeding5. Cost of costing6. Commodification

The Cost of Regulatory Pretense

Policy makers worried over commercialization that took place long ago

1. Forgone opportunity to develop legal policies designed to improve the functioning of the market

2. Forgone opportunity to improve existing public policies

3. Prevents full compensation to certain suppliers but not the baby market intermediaries

Romanticizing of the Baby market

Open Market undermines primary human values

But banning the baby market is politically infeasible in the United States

Uplift societal pretense regarding the existence of legal baby markets

And design public policies to protect the best interest of children.

Baby Market: Distribution of unwanted babies

• Shortage of healthy, white infants will force parents into the state foster case system that, sadly, does not suffer from a shortage of supply

• Any system increasing the supply of children requiring adoption would be counter-productive

• Design a system that not only meets the desires of childless couples, but also take care of a limited number of unwanted newborns, with the incidental side effect of bringing joy to childless couples

Thank you