Is it really possible to build a bridge between cost-benefit analysis and cost-effectiveness analysis?

Abstract

Economists have attempted to build a welfare economic bridge between cost-benefit analysis and cost effectiveness analysis in order to give the latter a basis in welfare economics. This paper develops these attempts and finds that highly unrealistic assumptions are necessary to facilitate the constant willingness-to-pay per unit of health outcome such a bridge requires.We develop an impossibility theorem that shows it is not possible to link CBA and CEA if:(i) the axioms of expected utility theory hold; (ii) the QALY model is valid in a welfare economic sense; and (iii) illness affects the ability to enjoy consumption. We conclude that, within a welfare economic framework, it would be unwise to rely on a link between CBA and CEA in economic evaluations. JEL Classification: I101 We wish to thank Martin Jones, Jan Abel Olsen and Mark Sculpher for their detailed comments on earlier drafts of this paper. We are also grateful for comments received from participants at various seminars, particularly those at the Universities of Sheffield and Newcastle.

Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses

“…This specification of the utility function is standard in the health economics literature (for example, Phelps [1992, Ch. 2]; Bleichrodt and Quiggin [1999]; Dolan and Edlin [2002]). Wealth y in the utility function (1) is measured in monetary units, but health is not.…”

On the possibility of a bridge between CBA and CEA: comments on a paper by Dolan and Edlin

“…Johannesson, 1995;Johannesson and Meltzer, 1998;Garber and Phelps, 1997;Bleichrodt and Quiggin, 1999;Brouwer and Koopmanschap, 2000;Dolan and Edlin, 2002). The recent contribution to this literature by Dolan and Edlin (2002) (in the following denoted DE) is therefore one among many, and what will be stated below as comments to DE applies to other contributions as well.…”

Contingent valuation studies and health policy

“…4 Because those who would benefit from the P 1 programme have a lower utility level than those who would benefit from the P* programme, a sufficiently inequality-averse SWF will choose to give a smaller utility benefit (Dqv(c 1 )) to them, over a larger utility benefit (Dqv(c*)) to the P* beneficiaries. In short, CBA and CEA can deviate from each other -which is well known in the health economics literature (Dolan and Edlin, 2002). However, each can also deviate from what is very plausibly the best specification of welfarism, the SWF approach -a point not sufficiently emphasised in that literature.…”