Using Psychology Concepts to Explain Mathematical Economics Cases

Introduction of material incentives reduces the supply of voluntary blood donors by 7 to 9 Percent

The law of supply in economics states that, all else unchanged, an increase in the price of a good or service will increase the quantity supplied. The quantity supplied is the level of supply that suppliers are willing to bring to the market for sale. Suppliers are assumed to be rational, which means they seek to maximize utility for themselves. As such, they will supply more of something if they expect to get a higher price for it. However, does the law of supply apply to prosocial activities such as blood donations?

The World Health Organization in 1975 passed a resolution encouraging countries to target 100 percent voluntary non-renumerated blood donations by 2020. This meant filling blood banks with donations collected from unremunerated volunteers. However, developed nations such as the US have begun offering material incentives to blood donors to encourage more people to donate blood to the country’s blood banks. The incentives offered include gift cards, cash, community service credits for minor offenders, ticket vouchers, blood assurance program memberships, and paid time off work (Abolghsemi et al., 10). Based on the law of supply, one would expect the supply of donors to increase with the introduction of material incentives. However, findings from conducted studies show that cash incentives discourage seven percent of donors from donating again, while the rest of the incentives discourage 9 percent of donors from returning (Abolghsemi et al., 10). Studies conducted to compare findings from different locations found that introduction of monetary incentives reduced the supply of donors at religious sites by almost half, and increased donor supply in schools and universities, although the increase was minimal (Abolghsemi et al., 10).

CASE STUDY QUESTIONS

1. What are some of the material incentives offered to blood donors in the United States?

Blood donors in the US receive a number of material incentives for their donations. The most common ones include opportunities to win prizes such as vehicles and television sets, event and movie tickets, branded t-shirts, blood credits, cash, paid time off work, and blood assurance program memberships (Abolghsemi et al., 10). Items of appreciation, such as t-shirts are the most common incentives for blood donors in the US, while cash is the least common (Abolghsemi et al., 10).

2. What was the general effect of introducing material rewards on the supply of voluntary blood donors?

Generally, introduction of monetary rewards reduces the supply of voluntary blood donors. Cash incentives reduce the number of voluntary blood donors returning for another donation by 7 percent, while the rest of the incentives reduced blood donor supply by at least 9 percent. The greatest decline in supply was reported among donors at religious sites, where introduction of incentives discouraged approximately 50 percent of voluntary donors from returning.

3. What are the findings from studies conducted outside the US? Are they similar to those reported in the case?

Studies conducted outside the US have yielded varying results. Mellstrom and Johannesson (845) conducted a study to determine the effect of monetary incentives on the supply of Swedish blood donors. Participants were categorized into three groups. Those in the first group did not receive any incentives to donate, those in the second group received a cash incentive of $7, and those in the third group were to choose between donating $7 to charity and receiving a cash incentive of $7. The findings showed no significant differences in supply across the three groups for male participants. For female participants, however, introduction of incentives reduced the supply of blood donors by almost half (Mellstrom and Johannesson 861).

In another study carried out in the United Kingdom, researchers divided 10,490 blood donors into three categories. The first category received free cholesterol tests, the second category received a lottery ticket, and the third category did not receive any incentives (Goette and Stutzer 12). The study found no evidence that the introduction of material incentives crowded out blood donations. The findings showed that the free medical test alone had an insignificant effect on blood donations, while receiving a lottery ticket effectively increased the supply of voluntary blood donors (Goette and Stutzer 12). The study thus concludes that incentives did not crowd out blood donations as widely-suggested in the literature.

4. What are the likely reasons behind the observed case findings?

To explain the negative relationship between material incentives and blood donor supply, sources use the psychological concept of intrinsic motivation. Intrinsic motivation is a development psychology concept that refers to behavior driven by internal satisfaction and enjoyment rather than external elements such as rewards and external pressures (Thomas 48). Blood donors choose to donate their blood out of an altruistic motivation to help others. As such, blood donation is a prosocial activity (Abolghsemi et al. 11). The primary reason why people engage in such activities is so that they are regarded highly by the society (Abolghsemi et al. 11). However, material incentives undermine this altruistic motivation by commercializing the blood donation idea (Abolghsemi et al. 11).

In so doing, they undermine the very foundation of such prosocial acts, in turn discouraging individuals from participating in such activities (Abolghsemi et al. 11). For individuals taking part in prosocial activities, the activities of other agents in the society are crucial. As such, individuals may only be willing to engage in prosocial activities if they perceive other agents in society to be selfless (Abolghsemi et al. 11). Introduction of material incentives may be perceived as an act seeking to pursue selfish goals, which may discourage voluntary blood donors from contributing towards the same (Abolghsemi et al. 11).

5. What are the likely reasons for the differences in voluntary blood donor patterns in schools and religious sites?

The differences are most likely due to variations in the levels of intrinsic motivation between donors in schools and those at religious sites. Donors at religious sites are mostly order and are more likely to perceive material incentives as a means for counterparties to pursue selfish gains. As such, they are likely to find incentives unattractive. Donors in schools, on the other hand, are mostly young and are more likely to find incentives attractive (Abolghsemi et al., 2010).

6. What policy alternatives could the government consider as a means to increase supply in national blood banks?

According to Abolghsemi et al. (11), blood donors, like all participants in prosocial activities, are concerned about how the public perceives them and the image created when they donate blood. Such donors will want the society to regard them as prosocial individuals even if they are given incentives. Thus, a plausible strategy may be to award material incentives publicly to donors and publish their names on public sites such as local newspapers (Abolghsemi et al. 11). This will help the donors maintain their public image despite accepting incentives. Further, Abolghsemi et al. (11) advises that policymakers administer selective incentives such as free medical tests for older donors and lottery tickets for younger donors. This would be more effective than administering umbrella incentives that fail to take into account the needs of different donor groups.