Designing Incentives That Matter—Even After Death: Interview with Alex Chan

Businesses looking to structure incentive systems could learn a lot from the complicated economics of human organ donations. That’s right—even in the afterlife, nudges shape how relatives, undertakers, doctors, and payers behave.

The stakes are high: Getting the right incentives to make the organ supply chain hum could mean the difference between life or death, not to mention large financial wins or losses. While running a transplant program isn’t that different from “the business of making widgets,” says Harvard Business School Assistant Professor Alex Chan, the unique ethical considerations tied to human organs require extra care.

“It is the market that actually encapsulates all the most exciting questions in economics,” says Chan, who holds a master’s in public health and worked as a health care consultant before shifting to big data and technology. “It sits at the intersection of money, bodies, and the afterlife—the three things we are most polite, and most confused, about.”

Much of Chan’s work zooms in on the broken economics of kidney transplants: More than 800,000 people in the US live with end-stage kidney disease, and treating them with dialysis costs Medicare about $30 billion a year. About a third receive kidney transplants, while many others die waiting, in part because only 42% of families of eligible deceased donors agree to donation and many viable organs are discarded.

In “Reimagining Transplant Center Incentives Beyond the CMS IOTA Model,” published in January in the Journal of the American Medical Association, Chan explores a government experiment that pays kidney centers for volume and efficiency—not just outcomes—which could increase transplant numbers. Chan cowrote the article with Alvin E. Roth, the George Gund Professor of Economics and Business Administration, Emeritus, at HBS.

In addition, covering funeral costs for organ donors could increase donation rates by up to 35%, and save up to 419,000 life years and as much as $800 million in Medicare expenses, Chan and coauthor Kurt Sweat of the University of Texas Southwestern Medical Center write in “Funeral Expense Reimbursement as a Strategy to Enhance Organ Donation and Transplantation Access,” published in October in NPJ Health Systems.

In a conversation lightly edited for clarity and length, Chan explains where the organ donor system breaks down, what he thinks could fix it, and what many businesses can learn about the power of incentives.

Why Chan felt compelled to study the organ market

“Two things pulled me in. First, this is a market where the stakes are brutally clear. Organ transplantation is one of the few places where inefficiency shows up not as a deadweight loss in a textbook, but as people dying on a waiting list. When a market fails here, it fails loudly.

Second, the level of inefficiency is staggering. Each year, more than 5,000 organs are recovered and then discarded, while roughly the same number of people die waiting for an organ. These are million-dollar transactions once you account for surgery, lifelong care, and avoided dialysis. So even small improvements in incentives can save lives directly and save the healthcare system billions of dollars.

For an economist or market designer, that’s a rare alignment: moral urgency and economic leverage pointing in the same direction.”

Incentives must consider what’s socially acceptable

“Incentive design is much harder than we like to admit. Organ transplantation is a supply chain. You have procurement organizations, hospitals, surgeons, patients, regulators, all responding to different incentives.

Designing a good incentive for one actor is already difficult. Designing incentives so that the entire chain works well is not just adding up the optimal incentives for each link. Sometimes improving one part of the system quietly breaks another.

This is a market with moral and political constraints embedded in it. In healthcare, and frankly now in most markets, the incentives that are economically sensible also need to be socially legitimate.

Incentives don’t just change behavior; they express values. In markets that touch life, death, or dignity, people react not only to what the incentive does, but to what it seems to say. That makes incentive design less like tuning a machine and more like negotiating a fragile social contract.”

Funeral reimbursements could increase organ donations

“How do rules and incentives shape who gets an organ, when, and whether that organ gets used at all?

The [JAMA report] focuses on regulatory incentives at transplant centers, showing how performance metrics intended to protect quality can unintentionally encourage risk avoidance. Centers don’t just respond to incentives by doing more or less—they respond by changing which patients and organs they’re willing to consider.

The [NPJ Health Systems paper] steps into the most controversial territory: donor-side incentives. It asks whether carefully designed, ethically constrained forms of compensation—like funeral expense reimbursement—can increase donation without commodifying organs. The data suggest that modest, well-bounded incentives can have large effects, but only if they are designed with political and ethical legitimacy in mind.

What surprised me … is how much inefficiency persists, not because we lack technical solutions, but because incentives are designed piecemeal, without treating the market as a coherent institution.”

The ‘ick factor’ might prevent progress

“Very often people do not want to use the right incentives because they have this concept of it being repugnant.

[For instance], we would pay for the funeral of someone who gives their life for their country when they serve in the military. We will pay for the funeral of someone who donated their body for scientific research to advance society. But if people want to donate an organ to save another person's life? If [that donor’s] family would very much welcome some support at a moment of crisis, we are not going to pay for the funeral. Even a very sensible incentive sometimes is bound by social norms, or even what we call the ‘ick factor,’ and we have a less effective system at the end.

People worry that incentives will corrupt the gift of life. But the truth is that we already have incentives; they’re just accidental and poorly distributed. The choice isn't between market and no market. It’s between a system we design on purpose and a system that fails by accident. Ignorance of incentives doesn't make a system moral; it just makes it inefficient.”

Policymakers agree the transplant supply chain is broken

“Right now is a particularly interesting time because the new head of the Center for Medicare and Medicaid Innovation is interested in this topic. They test initiatives, and one of them is to fix the incentives in the transplant supply chain.

Among all issues of the past 10 years or so, fixing the organ transplantation supply chain is one of the initiatives that is very bipartisan. You have senior Republicans and senior Democrats who want to fix the organ supply chain because you look at the stats, and nobody likes people dying waiting for kidneys while we throw away a ton of kidneys, and while there are a ton of kidneys that were not even recovered. This is an issue I think everyone can agree on.”

The best ways to design incentives

“No company is isolated from society, and no company is only dealing with a single function. With that in mind, to create effective incentives, companies should:

1. Keep an eye on the main mission. People will [mistakenly] optimize for the metric even if it kills the mission. It’s not that people don't want to sign up for the mission, but it's really hard because you [often] cannot measure the mission.

2. Reward results, not heroes. If your sales team is winning but your logistics team is bleeding, you aren't winning. With bad incentives, you just increase the organs that are recovered and discarded. There are always unintended consequences … optimization is not static.

3. Leverage social proof. If your team thinks an incentive is unfair, they won't just ignore it—they will actively sabotage it. The question isn't, 'Does this incentive work?' The question is, 'What does this incentive tell my people I value?'”

Finding an answer that survives scrutiny is challenging

“Early in my career, I believed that if you got the math right, the world would follow. Over time, I’ve become much more interested in robust solutions.

Markets aren’t abstract mechanisms. They’re social institutions that have to survive politics, ethics, and public scrutiny. An elegant mechanism that collapses the moment a politician gets nervous or a social norm shifts isn’t really a solution.

Organ transplantation makes clear that the hardest part of design isn’t finding the right answer. It’s finding an answer that can survive the messiness of human behavior.”

Illustration by Ariana Cohen-Halberstam with assets from AdobeStock.