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Future costs in cost effectiveness analysis

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  • Lee, Robert H.
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    Abstract

    This paper resolves several controversies in CEA. Generalizing [Garber, A.M., Phelps, C.E., 1997. Economic foundations of cost-effectiveness analysis. Journal of Health Economics 16 (1), 1-31], the paper shows accounting for unrelated future costs distorts decision making. After replicating [Meltzer, D., 1997. Accounting for future costs in medical cost-effectiveness analysis. Journal of Health Economics 16 (1), 33-64] quite different conclusion that unrelated future costs should be included in CEA, the paper shows that Meltzer's findings result from modeling the budget constraint as an annuity, which is problematic. The paper also shows that related costs should be included in CEA. This holds for a variety of models, including a health maximization model. CEA should treat costs in the manner recommended by Garber and Phelps.

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    File URL: http://www.sciencedirect.com/science/article/B6V8K-4R98K1X-1/1/bc9e8ada4dc59532a7ecfae132e5e3c1
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Health Economics.

    Volume (Year): 27 (2008)
    Issue (Month): 4 (July)
    Pages: 809-818

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    Handle: RePEc:eee:jhecon:v:27:y:2008:i:4:p:809-818

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    Web page: http://www.elsevier.com/locate/inca/505560

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    References

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    1. Blomqvist, Ake, 2002. "Defining the value of a statistical life: a comment," Journal of Health Economics, Elsevier, vol. 21(1), pages 169-175, January.
    2. Weinstein, Milton C. & Manning, Willard Jr., 1997. "Theoretical issues in cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 121-128, February.
    3. Barro, Robert J & Friedman, James W, 1977. "On Uncertain Lifetimes," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 843-49, August.
    4. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    5. Johansson, Per-Olov, 2001. "Is there a meaningful definition of the value of a statistical life?," Journal of Health Economics, Elsevier, vol. 20(1), pages 131-139, January.
    6. Andrew B. Abel, 1987. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
    7. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
    8. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
    9. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-71, September.
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    Cited by:
    1. Bengt Liljas, 2010. "On the welfare theoretic foundation of cost-effectiveness analysis—the case when survival is not affected," The European Journal of Health Economics, Springer, vol. 11(1), pages 5-13, February.
    2. Amitabh Chandra & Jonathan Skinner, 2012. "Technology Growth and Expenditure Growth in Health Care," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 645-80, September.
    3. Baal, P.H. van & Feenstra, T.L. & Polder, J.J. & Hoogenveen, R.T. & Brouwer, W., 2011. "Economic evaluation and the postponement of health care costs," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4111890, Tilburg University.

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