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

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.