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Allocating health care resources when people are risk averse with respect to life time

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  • Michael Hoel

    (Department of Economics, University of Oslo, Norway)

Abstract

The criterion of cost-effectiveness in health management may be given a welfare-theoretical justification if people are risk neutral with respect to life years. With risk aversion, the optimal allocation of health expenditures changes: Compared to the cost-effective allocation, more resources should be allocated to health conditions for which the expected outcomes even after treatment are worse than average. The consequences of medical interventions are usually not known with certainty. Given this type of uncertainty, simple application of cost-effectiveness analysis would recommend maximization of expected health benefits given the health budget. We show that when people are risk averse with respect to the number of life years they live, the uncertainty associated with different types of interventions should play a role in allocating the health budget. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Michael Hoel, 2003. "Allocating health care resources when people are risk averse with respect to life time," Health Economics, John Wiley & Sons, Ltd., vol. 12(7), pages 601-608.
  • Handle: RePEc:wly:hlthec:v:12:y:2003:i:7:p:601-608
    DOI: 10.1002/hec.733
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Laura Levaggi & Rosella Levaggi, 2010. "Strategic costs and preferences revelation in the allocation of resources for health care," International Journal of Health Economics and Management, Springer, vol. 10(3), pages 239-256, September.
    2. Phuong Bui & David Crainich & Louis Eeckhoudt, 2005. "Allocating health care resources under risk: risk aversion and prudence matter," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 1073-1077.
    3. Christophe Courbage, 2010. "On priority setting in preventive care resources," Health Economics, John Wiley & Sons, Ltd., vol. 19(4), pages 485-490.
    4. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2013. "On multivariate prudence," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1255-1267.
    5. Bleichrodt, Han & Crainich, David & Eeckhoudt, Louis, 2008. "Aversion to health inequalities and priority setting in health care," Journal of Health Economics, Elsevier, vol. 27(6), pages 1594-1604, December.
    6. Elamin H. Elbasha, 2005. "Risk aversion and uncertainty in cost-effectiveness analysis: the expected-utility, moment-generating function approach," Health Economics, John Wiley & Sons, Ltd., vol. 14(5), pages 457-470.
    7. Afschin Gandjour, 2015. "Comment on: “Healthy Decisions: Towards Uncertainty Tolerance in Healthcare Policy”," PharmacoEconomics, Springer, vol. 33(9), pages 981-982, September.
    8. Courbage, Christophe & Rey, Béatrice, 2012. "Priority setting in health care and higher order degree change in risk," Journal of Health Economics, Elsevier, vol. 31(3), pages 484-489.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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