by Marcella Bothwell, MBA ’14, and Erez Yoeli, Lecturer
Biotechnology researchers sometimes use human tissue samples collected from patients during necessary procedures to develop immortal cell lines. These cell lines are used in the research and development of drugs and other treatments for diseases. These immortal cell lines can be immensely profitable for their developers, but patients have not always shared in the wealth created with their tissue. The best-known case is that of Henrietta Lacks, the impoverished originator of the immortal cell line “HeLa.” Lacks’ tissue was obtained during her treatment for cervical cancer, and while she and her family struggled to pay for treatment, researchers have since made millions from discoveries developed using her cell line.1 Another case is that of Robert Moore, whose tissues were kept and developed after he underwent treatment at a University of California hospital. When Moore discovered that his tissue had been developed into a profitable cell line, he sued the UC system, but the courts ruled that he had no rights over his tissue once it was removed from his body. Subsequent cases such as Greenburg v. Miami Children’s Hospital have also granted the rights to voluntarily provided body tissue and genetic information to researchers and their employing institutions – not patients.
Whether the courts have correctly assigned property rights for human tissue collected during necessary procedures is a complex question that raises a host of issues and has no single right answer. In this article, we provide an analysis of the courts’ decisions from one very particular viewpoint – that of economic efficiency. We define economic efficiency as the allocation of resources that maximizes production of goods and services.2
The Coase Theorem
Any economic analysis of property rights begins with the Coase theorem, the Nobel prize-winning work introduced in 1937 by Ronald Coase. Coase argued that as long as property rights are well-defined, all parties are equally and perfectly informed about the benefits from a transaction, and negotiation is not overly burdensome, it does not actually matter who holds the rights – the parties will reach an economically efficient outcome through negotiation.3 A simple fictitious example may help to clarify Coase’s insight.
The town of “Upstreamia” sits upstream of “Downstreamia” on a river in upstate New York. In the 1930s, Upstreamia had an active garment industry, and its factories would dump their industrial waste into the river to the serious detriment of the residents of Downstreamia. Cases of deformities and strange illnesses proliferated in Downstreamia until the town decided to take action and sued its upstream neighbors. The case ultimately boiled down to a question of property rights: Did Upstreamia have the right to pollute the river, or did Downstreamia have the right to a clean river? Obviously, the latter seems more fair. However, the Coase theorem teaches us that if we ignore fairness and focus entirely on getting Upstreamia to take the welfare of Downstreamia’s residents into account and not overpollute – that is, from the standpoint of economic efficiency – it does not matter how the court assigns the property rights as long as it does so in a clear way. If it grants the right to pollute to Upstreamia, Downstreamia will pay Upstreamia to abate its pollution, and if it grants the right to clean water to Downstreamia, Upstreamia’s factories will abate their pollution somewhat and compensate Downstreamia’s residents for what pollution they continue to emit. In the first case, Upstreamia’s factories are better off, and in the second case, Downstreamia’s residents are better off. In both cases, we achieve the optimal, reduced level of pollution. (The court, by the way, first sided with Upstreamia, then reversed the decision some years later after it was determined that Downstreamia’s pollution levels were within the bounds permitted by the newly enacted Clean Water Act.)
The Coase theorem appears to suggest that it does not matter whether we give patients or doctors the rights to patients’ tissue, but in fact it does exactly the opposite: It highlights precisely why correctly assigning property rights is crucial in this case. Let us reconsider the example of Upstreamia and Downstreamia. The key to an efficient outcome is successful negotiation of a settlement once the property rights have been assigned. This can only happen if both sides are equally, perfectly informed about the costs and benefits of reduced pollution, and if the costs of negotiation are small.
If both sides cannot agree on the costs or benefits of abatement, or if negotiating is prohibitively costly, then the towns might not reach an agreement. It is easy to see that in real life the conditions needed for the Coase theorem to hold are not always met, and negotiations break down even when it would be socially efficient to reach an agreement.
Negotiations Break Down
In the case of human tissue, the efficient outcome is for both parties to reach an agreement and for the tissue to end up with the researchers, since it has already been extracted and at that point the patient does not expect to incur further costs. The problem is that doctors and researchers have substantially better information about the potential value of the tissue, and it is difficult for them to credibly convey this value to patients. Doctors also have an incentive to downplay the potential gains from the tissue during negotiations so that they avoid paying a high price for the samples. Recognizing this, patients might not agree to small payments even though there is no cost to them to provide their already extracted tissue, in hopes of holding out for higher payments. Because the value of the typical tissue sample is actually quite low until it is developed by researchers, in many cases researchers would refuse to make higher offers, and no trade would occur.
By assigning the property rights to the extracted tissue to researchers, the courts have eliminated the possibility that negotiations will break down and ensured that the tissue will end up with the researchers. This solution may not be fair to patients, but it is simple and socially efficient. Until other alternatives develop, we can at least be satisfied that the courts have implemented a socially efficient solution – one that puts tissue to the most economically productive use.
Marcella Bothwell (FlexWeekend Class of 2014) is chair of the Pediatric Airway and Aero-Digestive team in Rady Children’s Hospital in San Diego and a faculty member at the UC San Diego Department of Surgery. She focuses on dissemination of health information, bioethics, and business applications in the health care industry.
Erez Yoeli is an economist at the Federal Trade Commission, a lecturer at the Rady School of Management, and a visiting scholar at the Program for Evolutionary Dynamics at Harvard University. His research focuses on fraud and altruism.
- Watson, Denise M. 2010. “Cancer Cells Killed Henrietta Lacks – Then Made Her Immortal.” The Virginian-Pilot, May 10. http://hamptonroads.com/2010/05/cancer-cells-killed-her-then-they-made-her-immortal.
- Sullivan, Arthur and Steven M. Sheffrin. 2003. Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall.
- Coase, Ronald H. 1937. “The Nature of the Firm.” Economica 4.