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Cost-effectiveness analysis and health care resource allocation: decision rules under variable returns to scale

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Author Info
Elamin H. Elbasha (US Centers for Disease Control and Prevention (CDC), USA)
Mark L. Messonnier (US Centers for Disease Control and Prevention (CDC), USA)
Abstract

We argue that health programs are administered in settings that often violate the frequently stated assumption of constant returns to scale in the provision of health services. Three types of returns to scale are identified from the general economic literature: returns to scale with respect to population, effectiveness, and quality. We show that decision rules based on incremental cost-effectiveness ratios or cost-benefit tests are not optimal if returns to scale are not constant. We derive the optimal decision rules under variable returns to scale using optimization techniques, and employ several examples to illustrate the concepts and methods. Published in 2003 by John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.793
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 13 (2004)
Issue (Month): 1 ()
Pages: 21-35
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wly:hlthec:v:13:y:2004:i:1:p:21-35

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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. Dor, Avi, 1989. "The costs of Medicare patients in nursing homes in the United States : A multiple output analysis," Journal of Health Economics, Elsevier, vol. 8(3), pages 253-270, December. [Downloadable!] (restricted)
  2. Taylor, Jim & Bradley, Steve, 2000. "Resource Utilization and Economies of Size in Secondary Schools," Bulletin of Economic Research, Blackwell Publishing, vol. 52(2), pages 123-50, April.
  3. Martin Gaynor & William B. Vogt, 1999. "Antitrust and Competition in Health Care Markets," NBER Working Papers 7112, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Koshal, Rajindar K. & Koshal, Manjulika, 1999. "Economies of scale and scope in higher education: a case of comprehensive universities," Economics of Education Review, Elsevier, vol. 18(2), pages 269-277, April. [Downloadable!] (restricted)
  5. Bailey, Elizabeth E & Friedlaender, Ann F, 1982. "Market Structure and Multiproduct Industries," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 1024-48, September. [Downloadable!] (restricted)
  6. Vitaliano, Donald F. & Toren, Mark, 1994. "Cost and efficiency in nursing homes: a stochastic frontier approach," Journal of Health Economics, Elsevier, vol. 13(3), pages 281-300, October. [Downloadable!] (restricted)
  7. Ahern, Melissa, 1993. "The softness of medical production and implications for specifying hospital outputs," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 281-294, April. [Downloadable!] (restricted)
  8. Gertler, Paul J & Waldman, Donald M, 1992. "Quality-Adjusted Cost Functions and Policy Evaluation in the Nursing Home Industry," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1232-56, December. [Downloadable!] (restricted)
  9. Eugene M. Laska & Morris Meisner & Carole Siegel & Aaron A. Stinnett, 1999. "Ratio-based and net benefit-based approaches to health care resource allocation: proofs of optimality and equivalence," Health Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 171-174.
  10. Sintonen, Harri & Linnosmaa, Ismo, 2000. "Economics of dental services," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 24, pages 1251-1296 Elsevier. [Downloadable!] (restricted)
  11. Johannesson, Magnus & Weinstein, Milton C., 1993. "On the decision rules of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 12(4), pages 459-467, December. [Downloadable!] (restricted)
  12. Okunade, Albert Ade, 1993. "Production Cost Structure of U.S. Hospital Pharmacies: Time-Series, Cross-Sectional Bed Size Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 277-94, July-Sept. [Downloadable!] (restricted)
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  14. Escarce, Jose J. & Pauly, Mark V., 1998. "Physician opportunity costs in physician practice cost functions," Journal of Health Economics, Elsevier, vol. 17(2), pages 129-151, April. [Downloadable!] (restricted)
  15. Stinnett, Aaron A. & Paltiel, A. David, 1996. "Mathematical programming for the efficient allocation of health care resources," Journal of Health Economics, Elsevier, vol. 15(5), pages 641-653, October. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier. [Downloadable!] (restricted)
  18. Weinstein, Milton & Zeckhauser, Richard, 1973. "Critical ratios and efficient allocation," Journal of Public Economics, Elsevier, vol. 2(2), pages 147-157, April. [Downloadable!] (restricted)
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(explanations, 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. Pieter H. M. van Baal & Talitha L. Feenstra & Rudolf T. Hoogenveen & G. Ardine de Wit & Werner B. F. Brouwer, 2007. "Unrelated medical care in life years gained and the cost utility of primary prevention: in search of a 'perfect' cost-utility ratio," Health Economics, John Wiley & Sons, Ltd., vol. 16(4), pages 421-433. [Downloadable!]
  2. Eddy Adang, 2008. "Economic evaluation of innovative technologies in health care should include a short-run perspective," The European Journal of Health Economics, Springer, vol. 9(4), pages 381-384, November. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. Carmen Herrero & Juan D. Moreno-Ternero, 2005. "A new outcome measure for cost-utility analyses of screening programs," Economics Bulletin, Economics Bulletin, vol. 9(7), pages 1-8. [Downloadable!]
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