Citation

Johansson-Stenman O. J. Health Econ. 2008; 27(2): 234-248.

Affiliation

Department of Economics, School of Business, Economics and Law, Göteborg University, Vasagatan 1, Göteborg, Sweden. Olof.Johansson@economics.gu.se

Copyright

(Copyright © 2008, Elsevier Publishing)

DOI

10.1016/j.jhealeco.2007.04.004

PMID

18177959

Abstract

Empirical evidence suggests that people's risk-perceptions are often systematically biased. This paper develops a simple framework to analyse public policy when this is the case. Expected utility (well-being) is shown to depend on both objective and perceived risks (beliefs). The latter are important because of the fear associated with the risk and as a basis for corrective taxation and second-best adjustments. Optimality rules for public provision of risk-reducing investments, "internality-correcting" taxation (e.g. fat taxes) and provision of costly information to reduce people's risk-perception bias are presented.

Language: en