Outsourcing Wombs with Social Ignominy

In this note we characterize the ‘outsourcing of womb' or ‘rent a womb' contracts in terms of a hidden action framework with social ignominy and discrete effort. We show that the nature of optimum contracts change significantly with social ignominy compared to without social ignominy. Specifically we show that inefficiency (higher incentive payment compared to first-best to elicit high effort) is inherent if the surrogate suffers from a feeling of social ignominy stemming from her commercial motive which is not the case without social ignominy. Also with social ignominy the optimal contract becomes unique whereas multiple optimal ‘first best' contracts are possible without social ignominy. Thus presence of ‘social ignominy' and the consequent inefficiency from overall loss of surplus can provide one justification for India's recent banning of market driven gestational surrogacy contracts, which has been recently done in India through the tabling of the Surrogacy (Regulation) Bill, 2019 which attempts to stop the commoditization of wombs and babies on moral grounds. The bill has been passed in the lower house (Lok Sabha) but is yet to be passed by the upper house (Rajya Sabha) and then needs presidential consent before becoming a law.