Analyzing Healthcare Production Under Uncertainty in a State‐Contingent Framework

ABSTRACT 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.