Prevention and cure? Or: is an ounce of prevention worth a pound of cure?

A common problem of everyday life is that of deciding how much to spend to avoid something unpleasant happening, and then, if the worst comes to the worst, of deciding how much to spend to remedy the situation. This paper provides a framework for the analysis of such problems, focussing specifically on the appropriate allocation of expenditure on (preventative and curative) health care. A two-state (health and sickness) infinite horizon model is adopted, with movement between the states a first-order Markov process with probabilities which depend upon preventative and curative expenditure.