Working Paper: NBER ID: w0419
Authors: William Gould; Richard Thaler
Abstract: This paper is a theoretical analysis of individual and societal demands for life saving. We begin by demonstrating that the allocation of health expenditures to maximize lives saved may be inconsistent with the willingness-to-pay criterion and consumer sovereignty. We further investigate the effects of information on aggregate willingness to pay. This discussion is related to the concepts of statistical and identified lives. Methods of financing health expenditures are considered. We show that risk averse individuals may reject actuarially fair insurance for treatments of fatal diseases even if they plan to pay for the treatment if they get sick. This result has implications regarding the choice of treatment or prevention. Finally, we examine the importance of the timing of life-saving decisions. A conflict arises between society's preferences before it is known who will be sick and after, even if it is known in advance how many people will be sick.
Keywords: health economics; willingness to pay; life-saving interventions; consumer sovereignty
JEL Codes: I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| societal goals (maximizing lives saved) (L21) | individual preferences (willingness to pay) (D11) |
| individual risk perceptions (D81) | decision-making process regarding treatment versus prevention (D91) |
| timing of life-saving decisions (C41) | alignment between willingness to pay and maximizing lives saved (D61) |
| individuals (B31) | willingness to pay for known (identified) lives (J17) |
| individuals (B31) | willingness to pay for statistical lives (J17) |