Death and Dignity : Terminal Illness and the Market for Non-Treatment

We construct a stochastic model of illness, death and treatment choice to analyze two proposals -- legally-binding advance directives and insurer-paid compensation schemes -- to reduce the incidence of aggressive and possibly futile end-of-life treatment. We assess whether, in a competitive insurance market, the proposals are consistent with (i) individual rationality in selection of competitive insurance contracts; (ii) medically ethical treatment provision; and (iii) reductions in end-of-life expenditures. We conclude that binding advance directives are always medically unethical, while compensation schemes are medically ethical. We derive the compensation schedule arising in a competitive equilibrium, and show that it reduces aggressive treatment and satisfies individual rationality