PRIORITY SETTING IN HEALTH CARE: DISENTANGLING RISK AVERSION FROM INEQUALITY AVERSION

In this paper, we introduce a tractable social welfare function that is rich enough to disentangle attitudes towards risk in health outcomes from attitudes towards health inequalities across individuals. Given this preference specification, we evaluate how the introduction of uncertainty over the severity of illness and over the effectiveness of treatments affects the optimal allocation of healthcare resources. We show that the way in which uncertainty affects the optimal allocation within our proposed specification may differ sharply from that in the standard expected utility framework. Copyright (c) 2012 John Wiley & Sons, Ltd.