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Discounting for health effects in cost-benefit and cost-effectiveness analysis

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Author Info
Hugh Gravelle (National Primary Care Research and Development Centre, Centre for Health Economics, University of York, York, UK)
Dave Smith (Center for Health Research, Portland, OR, USA)

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Abstract

When health effects can be valued in monetary terms, as in cost-benefit analysis, they should be discounted at the same rate as costs. If health effects are measured in quantities (e.g. quality adjusted life years) as in cost-effectiveness analysis (CEA) and the value of health effects is increasing over time, discounting the volume of health effects at a lower rate than costs is a valid method of taking account of the increase in the future value of health effects. We show that the Keeler-Cretin paradox, often used as an argument against discounting health effects at a lower rate than costs, has no relevance for the choice of discount rate in CEA. We present individualistic and welfare models to argue that the rate of growth of the value of health effects is positive. The welfare model suggests that the value of health grows at a rate dependent on the rate of growth of the value of the direct effect of health on utility, the growth rate of income, the elasticity of the marginal utility of income and the extent to which individuals are insured against the income risks of ill health. Copyright © 2001 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.618
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 10 (2001)
Issue (Month): 7 ()
Pages: 587-599
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Handle: RePEc:wly:hlthec:v:10:y:2001:i:7:p:587-599

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alan Diener & Bernie O'Brien & Amiram Gafni, 1998. "Health care contingent valuation studies: a review and classification of the literature," Health Economics, John Wiley & Sons, Ltd., vol. 7(4), pages 313-326.
  2. Cropper, Maureen L. & G. Sussman, Frances, 1990. "Valuing future risks to life," Journal of Environmental Economics and Management, Elsevier, vol. 19(2), pages 160-174, September. [Downloadable!] (restricted)
  3. Kenneth J. Arrow, . "Intergenerational Equity and the Rate of Discount in Long-Term Social Investment," Working Papers 97005, Stanford University, Department of Economics. [Downloadable!]
  4. Viscusi, W. Kip & Moore, Michael J., 1989. "Rates of time preference and valuations of the duration of life," Journal of Public Economics, Elsevier, vol. 38(3), pages 297-317, April. [Downloadable!] (restricted)
  5. Klose, Thomas, 1999. "The contingent valuation method in health care," Health Policy, Elsevier, vol. 47(2), pages 97-123, May. [Downloadable!] (restricted)
  6. Cropper, Maureen L & Portney, Paul R, 1990. " Discounting and the Evaluation of Lifesaving Programs," Journal of Risk and Uncertainty, Springer, vol. 3(4), pages 369-79, December.
  7. Hurley, Jeremiah, 2000. "An overview of the normative economics of the health sector," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 2, pages 55-118 Elsevier. [Downloadable!] (restricted)
  8. Simon M. Burgess & Carol Propper, 1998. "Early health-related behaviours and their impact on later life chances: evidence from the US," Health Economics, John Wiley & Sons, Ltd., vol. 7(5), pages 381-399.
  9. Blomqvist, A. G. & Carter, R. A. L., 1997. "Is health care really a luxury?," Journal of Health Economics, Elsevier, vol. 16(2), pages 207-229, April. [Downloadable!] (restricted)
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  1. Hugh Gravelle & Werner Brouwer & Louis Niessen & Maarten Postma & Frans Rutten, 2007. "Discounting in economic evaluations: stepping forward towards optimal decision rules," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 307-317. [Downloadable!]
  2. Stephen Martin & Peter C Smith & Sheila Leatherman, 2006. "Value for money in the English NHS: Summary of the evidence," Working Papers 018cherp, Centre for Health Economics, University of York. [Downloadable!]
  3. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December. [Downloadable!] (restricted)
  4. Diane Dawson & Hugh Gravelle & Mary O'Mahony & Andrew Street & Martin Weale & Adriana Castelli & Rowena Jacobs & Paul Kind & Pete Loveridge & Stephen Martin & Philip Stevens & Lucy Stokes, 2005. "Developing new approaches to measuring NHS outputs and productivity," Working Papers 006cherp, Centre for Health Economics, University of York, revised Dec 2005. [Downloadable!]
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  5. Karl Claxton & Mark Sculpher & Anthony Culyer & Chris McCabe & Andrew Briggs & Ron Akehurst & Martin Buxton & John Brazier, 2006. "Discounting and cost-effectiveness in NICE - stepping back to sort out a confusion," Health Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 1-4. [Downloadable!]
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