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Cost and Benefits

Cost and Benefits. Introduction. Is treatment X worth it?. Cost-Benefit Analysis. Devote resources to an activity until the marginal benefit equals the marginal cost. Determining Value. Willingness To Pay (WTP) Surveys Market data (compensating differentials in labor markets)

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Cost and Benefits

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  1. Cost and Benefits

  2. Introduction • Is treatment X worth it?

  3. Cost-Benefit Analysis • Devote resources to an activity until the marginal benefit equals the marginal cost.

  4. Determining Value • Willingness To Pay (WTP) • Surveys • Market data (compensating differentials in labor markets) • Human Capital Approach • Estimate future earnings, used in accidental death injury cases.

  5. Cost Effectiveness • Incremental cost effectiveness analysis

  6. Cost-Utility Analysis • CUA is CEA with utility as a measure of benefits. • Useful for multi-dimensional problems • Utility proxied by Quality Adjusted Life Years or Disability Adjusted Life Years

  7. Quality Adjusted Life Year (QALY) • Standard gamble method • Time trade-off method

  8. Problems with CEA • Whose utility function? • Patients or public? • When to measure? • Mean or median? • Non-independence of value of health and wealth and consumption patterns

  9. Inequality in health • Americans with Disabilities act. Should their well being be considered equally?

  10. Practical Problems • Should fixed costs be taken into account?

  11. Cost Effectiveness vs Comparative Effectiveness

  12. Utilitarian versus Rawlsian

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