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Public Policy Toward Life Saving: Maximize Lives Saved vs. Consumer Sovereignty

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  • 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.

Suggested Citation

  • William Gould & Richard Thaler, 1980. "Public Policy Toward Life Saving: Maximize Lives Saved vs. Consumer Sovereignty," NBER Working Papers 0419, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0419
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    References listed on IDEAS

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    1. Richard Thaler & Sherwin Rosen, 1976. "The Value of Saving a Life: Evidence from the Labor Market," NBER Chapters, in: Household Production and Consumption, pages 265-302, National Bureau of Economic Research, Inc.
    2. Nestor E. Terleckyj, 1976. "Household Production and Consumption," NBER Books, National Bureau of Economic Research, Inc, number terl76-1, March.
    3. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    4. Mishan, E J, 1971. "Evaluation of Life and Limb: A Theoretical Approach," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 687-705, July-Aug..
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