Budget allocation and the revealed social rate of time preference for health
AbstractAppropriate decisions based on cost-effectiveness evaluations of health care technologies depend upon the cost-effectiveness threshold and its rate of growth as well as some social rate of time preference for health. The concept of the cost-effectiveness threshold, social rate of time preference for consumption and social opportunity cost of capital are briefly explored before the question of how a social rate of time preference for health might be established is addressed. A more traditional approach to this problem is outlined before a social decision making approach is developed which demonstrates that social time preference for health is revealed through the budget allocations made by a socially legitimate higher authority. The relationship between the social time preference rate for health, the growth rate of the cost-effectiveness threshold and the rate at which the higher authority can borrow or invest is then examined. We establish that the social time preference rate for health is implied by the budget allocation and the health production functions in each period. As such, the social time preference rate for health depends not on the social time preference rate for consumption or growth in the consumption value of health but on growth in the cost-effectiveness threshold and the rate at which the higher authority can save or borrow between periods. The implications for discounting and the policies of bodies such as NICE are then discussed.
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Bibliographic InfoPaper provided by Centre for Health Economics, University of York in its series Working Papers with number 053cherp.
Length: 20 pages
Date of creation: Oct 2009
Date of revision:
Economic evaluation. Discounting. Cost-effectiveness analysis;
Find related papers by JEL classification:
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-07 (All new papers)
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