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The relationship between cost-effectiveness analysis and cost-benefit analysis

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  • Johannesson, Magnus

Abstract

This paper examines the relationship between cost-effectiveness analysis and cost-benefit analysis. Provided that a cost-effectiveness analysis includes all the relevant societal costs, it is shown that a cost-effectiveness analysis can be interpreted as a cost-benefit analysis where the willingness to pay per effectiveness unit is assumed to be constant and the same for everyone. To relax this assumption the willingness to pay per effectiveness unit can be allowed to vary depending on for instance the size of the health effects and the target population. It is argued that cost-effectiveness analysis is best viewed as a subset of cost-benefit analysis, where the aim of the analysis is to estimate the cost function of producing health effects. It is also concluded that to interpret and use cost-effectiveness analysis as a tool to maximize the health effects for one specified real-world budget, will be inconsistent with a societal perspective and is likely to lead to major problems of suboptimization.

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Bibliographic Info

Article provided by Elsevier in its journal Social Science & Medicine.

Volume (Year): 41 (1995)
Issue (Month): 4 (August)
Pages: 483-489

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Handle: RePEc:eee:socmed:v:41:y:1995:i:4:p:483-489

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Related research

Keywords: economic evaluation cost-effectiveness analysis cost-utility analysis cost-benefit analysis societal perspective;

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Cited by:
  1. Carmen Herrero & Juan D. Moreno-Ternero, 2009. "Estimating production costs in the economic evaluation of health-care programs," Health Economics, John Wiley & Sons, Ltd., vol. 18(1), pages 21-35.
  2. Jose Luis Pinto Prades & Graham Loomes & Raul Brey, 2008. "Trying to estimate a monetary value for the QALY," Working Papers 08.09, Universidad Pablo de Olavide, Department of Economics.
  3. David Canning, 2007. "Valuing Lives Equally and Welfare Economics," PGDA Working Papers 2707, Program on the Global Demography of Aging.
  4. Hultkrantz, Lars & Svensson, Mikael, 2012. "A Comparison of Benefit Cost and Cost Utility Analysis in Practice: Divergent Policies in Sweden," Working Papers 2012:5, Örebro University, School of Business.
  5. Helen Mason & Michael Jones-Lee & Cam Donaldson, 2009. "Modelling the monetary value of a QALY: a new approach based on UK data," Health Economics, John Wiley & Sons, Ltd., vol. 18(8), pages 933-950.
  6. Johannesson, Magnus & O'Conor, Richard M., 1997. "Cost-utility analysis from a societal perspective," Health Policy, Elsevier, vol. 39(3), pages 241-253, March.
  7. Dolan, Paul & Edlin, Richard, 2002. "Is it really possible to build a bridge between cost-benefit analysis and cost-effectiveness analysis?," Journal of Health Economics, Elsevier, vol. 21(5), pages 827-843, September.
  8. David Canning, 2009. "Axiomatic Foundations of Cost Effectiveness Analysis," PGDA Working Papers 5109, Program on the Global Demography of Aging.
  9. Robinson, Angela & Gyrd-Hansen, Dorte & Bacon, Philomena & Baker, Rachel & Pennington, Mark & Donaldson, Cam, 2013. "Estimating a WTP-based value of a QALY: The ‘chained’ approach," Social Science & Medicine, Elsevier, vol. 92(C), pages 92-104.
  10. Liqun Liu & Andrew J. Rettenmaier & Thomas R. Saving, 2008. "Longevity bias in cost-effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 17(4), pages 523-534.
  11. Joanne Lord & George Laking & Alastair Fischer, 2006. "Non-linearity in the cost-effectiveness frontier," Health Economics, John Wiley & Sons, Ltd., vol. 15(6), pages 565-577.
  12. Smith, Richard D. & Richardson, Jeff, 2005. "Can we estimate the `social' value of a QALY?: Four core issues to resolve," Health Policy, Elsevier, vol. 74(1), pages 77-84, September.
  13. Powdthavee, Nattavudh & van den Berg, Bernard, 2011. "Putting Different Price Tags on the Same Health Condition: Re-evaluating the Well-Being Valuation Approach," IZA Discussion Papers 5493, Institute for the Study of Labor (IZA).
  14. Karl Claxton & Simon Walker & Steven Palmer & Mark Sculpher, 2010. "Appropriate Perspectives for Health Care Decisions," Working Papers 054cherp, Centre for Health Economics, University of York.
  15. Hammitt, James & Haninger, Kevin, 2010. "Diminishing Willingness to Pay per Quality-Adjusted Life Year: Valuing Acute Foodborne Illness," TSE Working Papers 10-268, Toulouse School of Economics (TSE).
  16. Andersson, Henrik & Hammitt, James & Sundström, Kristian, 2011. "Willingness to pay and QALYs: What can we learn about valuing foodborne risk?," TSE Working Papers 11-272, Toulouse School of Economics (TSE).
  17. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.

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