Footnote

To bring in "objective need," we could use a "Lancaster-Becker" model of the demand for health care, in which utility is a function of health states, which in turn are produced through a combination of household and medical technologies. While the preferences among health states are subjective, individual, and perhaps not interpersonally comparable, the technical coefficients for the process of transforming medical services and consumer goods into health states are objective. Objective need means that a certain combination of inputs is necessary to produce a particular health state, such as survival or the continued ability to walk or to see. However, the coefficients themselves are uncertain -- both the occurrence of illness and the emergence of new technologies result in unpredictable changes in the relationship between market goods and services and health states.

Thus, when we express utility as a function of market goods and services, utility will also be a function of "the state of the world," by way of the dependence of the uncertain relationship between the market goods and services and the health states that directly determine utility. However, this means that one of the basic assumptions of the Arrow-Debreu model of efficient competitive equilibrium is violated. The Arrow-Debreu model assumes that utility is not a function of the state of the world, though prices and the consumption of market goods and services may be. Thus, the basic neoclassical theorem on the efficiency of market equilibrium breaks down, although the general results of this breakdown are not, to the best of my knowledge, known.