Analyzing Healthcare Production Under Uncertainty in a State-Contingent Framework

In health care, decision-makers grapple with uncertainty, influencing production choices. This paper introduces a model exploring healthcare production under uncertainty using a state-contingent framework. Employing a parametric model and a general utility function, it calculates decision-makers' subjective probabilities for potential future states. Through numerical examples, it illustrates how optimal production choices are made. The model defines production technologies as state-allocable, facilitating resource allocation among various states and allowing for substitution of state-specific outputs. This approach offers more flexibility compared to traditional production analyses, empowering healthcare producers to better adapt and respond to uncertainties.