WILLINGNESS-TO-PAY AND THE DISTRIBUTION OF RISK AND WEALTH

Willingness to pay (WTP), most economists believe, is an appropriate b enefits metric for government expenditure and regulatory policies that reduce risks to human life. It depends, however, on the distribution of risk and wealth. Currently, society's expenditures overemphasize co ncentrated risks, say after-the-fact treatment as opposed to preventio n. A ''dead-anyway'' effect complements excess attention to intense in terests in explaining this. Our normative criterion for spending on ri sk reduction is what a rational, albeit uninsured, individual confront ing lotteries on future risks to life and wealth would choose for hims elf. This requires correcting WTP to eliminate the dead-anyway effect but continues to reflect that wealth enhances the utility of living.