How much is good health worth?

A consumer-demand or subjective-value approach to valuing government health activities is recommended. The human-capital valuations generally used in cost-benefit analysis are unrelated to peoples' preferences and, therefore, irrelevant to political decisions. A number of important policy conclusions emerge from applying the suggested principle that government activities be valued on the basis of what people would be willing to pay for them: Beyond programs to aid the poor, government health efforts should be restricted to overcoming deficiencies in the operations of the private marketplace; that is, to regulatory actions, control of infectious disease and environmental pollution, and aid to biomedical research. Free services provided to the poor should be justified by the willingness of the nonpoor to pay for them. Thus, the preferences of the nonpoor are important in designing optimal poverty programs. Under present circumstances, direct money transfers to the poor seem preferable to further increases in poverty medical programs. The value of existing programs could be increased by giving more weight to what the poor want instead of what medical experts say is most important for their health.The people who have assisted in the preparation of this paper are truly too numerous to mention in total. I am particularly indebted to Ed Park and Jim DeHaven of Rand for their helpful discussions, to Paul Feldman of the Institute for Defense Analysis for ideas, stimulation, and encouragement, and to Dick Zeckhauser of Harvard for his perceptive comments on an earlier draft.