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.