Adam Smith and Repugnance as a Constraint on Markets

The economic concept of Repugnance, developed by Alvin Roth (2007), suggests that some transactions, such as the buy and sale of kidneys for transplantation, are illegal simply because a sufficient number of people find it repugnant. In a repugnant transaction the participants are willing to transact, but third parties disapprove and wish to prevent the transaction. As Roth argued, these could have big consequences in what markets we see and can generate important social costs. For example, banning payments to organ donors is the main cause of the severe organ shortages in virtually all countries (Becker and Elias 2007), and outlawing activities such as abortion or prostitution typically drives them underground, reducing their safety and fueling crime. Could Adam Smith ideas provide a basis for deciding what should, and what should not, be up for sale? In this paper we analyze the economic concept of repugnance and its implications using insights from The Theory of Moral Sentiments and the Wealth of Nations. In terms of Smith, repugnance at the individual level is a moral sentiment. Departing from the idea of the impartial spectator, we analyze whether repugnance should translate into prohibition and affects legislation when the spectator disapproves it and how his judgement could vary across communities and time.