Theoretical considerations on the cost of illness

This paper explores the measurement of the cost of illness from a theoretical perspective. It is shown that under a wide range of circumstances the aggregate willingness to pay ex ante to reduce the probability of an illness exceeds (1) the consumer surplus gained ex post from such a reduction, and also (2) the sum of medical expenditure saved and output gained. These results are of interest because they provide a stronger basis for presuming that conventional empirical studies estimate lower bounds on the true cost of illness, and because they hold even if medical insurance distorts expenditure decisions.