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Willingness to Pay and the Distribution of Risk and Wealth

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  • Pratt, John W
  • Zeckhauser, Richard J

Abstract

Willingness-to-pay is an appropriate benefits metric for government expenditure and regulatory policies that reduce risks to human life. It depends, however, on the distribution of risk and wealth. Currently, society's expenditures overemphasize concentrated risks, say after-the-fact treatment as opposed to prevention. A 'dead-anyway' effect complements excess attention to intense interests in explaining this. The normative criterion for spending on risk reduction is what a rational, albeit uninsured, individual confronting lotteries on future risks to life and wealth would choose for himself. This requires correcting willingness-to-pay to eliminate the dead-anyway effect but continues to reflect that wealth enhances the utility of living. Copyright 1996 by University of Chicago Press.

Suggested Citation

  • Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-763, August.
  • Handle: RePEc:ucp:jpolec:v:104:y:1996:i:4:p:747-63
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    1. N/A, 1976. "Chapter IV. Problems of the Medium Term," National Institute Economic Review, National Institute of Economic and Social Research, vol. 75(1), pages 64-74, February.
    2. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
    3. Weisbrod, Burton A, 1991. "The Health Care Quadrilemma: An Essay on Technological Change, Insurance, Quality of Care, and Cost Containment," Journal of Economic Literature, American Economic Association, vol. 29(2), pages 523-552, June.
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