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A Simple Method for Converting a Cost-Effectiveness Analysis into a Cost-Benefit Analysis with an Application to State Mental Health Expenditures

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  • Robert J. Brent

    (Fordham University and the Nathan Kline Institute for Psychiatric Research)

Abstract

If cost-effectiveness and cost-benefit analyses are to produce identical rankings of programs, there is a simple equivalence between the criteria that enables one to derive a value for the effect that is being maximized. The value depends on knowing two magnitudes: (1) the cutoff cost-effectiveness ratio and (2) the marginal cost of public funds. The method is illustrated by trying to value state psychiatric hospital episodes using the revealed preference approach. Values varied by the state undertaking the expenditure (from a high of $52,526 in Pennsylvania to a low of $2,177 in Wisconsin) and the size of the predetermined federal budget assumed (a $1 billion budget produces a $10,418 value, and the actual budget of $7 billion produces a $54,540 value).

Suggested Citation

  • Robert J. Brent, 2002. "A Simple Method for Converting a Cost-Effectiveness Analysis into a Cost-Benefit Analysis with an Application to State Mental Health Expenditures," Public Finance Review, , vol. 30(2), pages 144-160, March.
    • Handle: RePEc:sae:pubfin:v:30:y:2002:i:2:p:144-160
    DOI: 10.1177/109114210203000204
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    References listed on IDEAS

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    1. Robert J. Brent, 1998. "Estimating the effectiveness and benefits of alcohol treatment programmes for use in economic evaluations," Applied Economics, Taylor & Francis Journals, vol. 30(2), pages 217-226, February.
    2. 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.
    3. Robert J. Brent (ed.), 1996. "Applied Cost–Benefit Analysis," Books, Edward Elgar Publishing, number 629.
    4. Birch, Stephen & Gafni, Amiram, 1992. "Cost effectiveness/utility analyses : Do current decision rules lead us to where we want to be?," Journal of Health Economics, Elsevier, vol. 11(3), pages 279-296, October.
    5. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
    6. Robert J. Brent, 1984. "Use of Distributional Weights in Cost-Benefit Analysis: a Survey of Schools," Public Finance Review, , vol. 12(2), pages 213-230, April.
    7. Blomquist, Glenn C, 1979. "Value of Life Saving: Implications of Consumption Activity," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 540-558, June.
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    Cited by:

    1. James Buchanan & Sarah Wordsworth, 2015. "Welfarism Versus Extra-Welfarism: Can the Choice of Economic Evaluation Approach Impact on the Adoption Decisions Recommended by Economic Evaluation Studies?," PharmacoEconomics, Springer, vol. 33(6), pages 571-579, June.

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