A Simple Inequality of Opportunity Model for Guiding Resource Allocation in Health

The allocation of healthcare resources involves making implicit value judgments related to welfare and inequality.

This paper develops a simple approach for addressing distributional issues by merging a Social Welfare Function with a Roemerian Inequality of Opportunity model.

Social Welfare Functions are used to measure the desirability of distributions of health outcomes, and we calculate the derivative of aggregate social welfare with respect to each individual's health. We then use regression models to identify subsets of the population where the derivative is the largest. An application using Australian data estimates the social welfare benefits of a unit improvement in health as a function of race, class, and gender.

In the baseline physical health model, when the inequality aversion parameter was set to γ=1, a marginal improvement in the health of a non-white, lower-socioeconomic class woman yields approximately 23% more social welfare in health than an analogous improvement in the health of a white, higher-socioeconomic class man. The corresponding difference for mental health was approximately 6.6%, driven primarily by gender and socioeconomic background.

The marginal social benefit of improvements in the distribution of health varies significantly over race, class, and gender, with social class at birth being the most important determinant.