Priority setting in health care and higher order degree change in risk

This paper examines how priority setting in health care expenditures is influenced by the presence of uncertainty about the severity of the illness and the effectiveness of medical treatment. We provide necessary and sufficient conditions on social preferences under which a social planner will allocate more health care resources to populations at higher risk. Changes in risk are defined by the concept of stochastic dominance up to order n. The shape of the social utility function and an equity weighting function are used to model the inequality aversion of the social planner. We show that for higher order risk changes, the usual conditions on preferences such as prudence or relative risk aversion are not necessarily required to prioritise health care when there are different levels of uncertainty associated with otherwise similar patient groups.