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Discounting of Life-Saving and Other Nonmonetary Effects

Author

Listed:
  • Emmett B. Keeler

    (The RAND Corporation, Santa Monica)

  • Shan Cretin

    (University of California at Los Angeles)

Abstract

Cost-effectiveness analysts generally assume that preferences over time are such that streams of monetary and nonmonetary program effects can be reduced to one discounted sum of monetary costs and another of effects. It is known that if the nonmonetary effects can be cashed out in a way that does not vary with time, then the rates of discount for monetary and nonmonetary effects have to be equal. This paper presents a more compelling argument for the equality of those rates when hard to monetize benefits such as life-saving are involved. It shows that if the ability to produce the nonmonetary effect does not diminish too quickly over time, failure to discount benefits implies that programs are always improved by delay. In general, discounting benefits and costs at different rates can lead to peculiar results.

Suggested Citation

  • Emmett B. Keeler & Shan Cretin, 1983. "Discounting of Life-Saving and Other Nonmonetary Effects," Management Science, INFORMS, vol. 29(3), pages 300-306, March.
  • Handle: RePEc:inm:ormnsc:v:29:y:1983:i:3:p:300-306
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    File URL: http://dx.doi.org/10.1287/mnsc.29.3.300
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    Citations

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    Cited by:

    1. Frederick, Shane, 2006. "Valuing future life and future lives: A framework for understanding discounting," Journal of Economic Psychology, Elsevier, vol. 27(5), pages 667-680, October.
    2. Alan M. Garber & Jonathan Skinner, 2008. "Is American Health Care Uniquely Inefficient?," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 27-50, Fall.
    3. Brousselle, Astrid & Lessard, Chantale, 2011. "Economic evaluation to inform health care decision-making: Promise, pitfalls and a proposal for an alternative path," Social Science & Medicine, Elsevier, vol. 72(6), pages 832-839, March.
    4. 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.
    5. Alan M. Garber & Charles E. Phelps, 1992. "Economic Foundations of Cost Effective Analysis," NBER Working Papers 4164, National Bureau of Economic Research, Inc.
    6. Michael Spackman, 2011. "Government discounting controversies: changing prices, opportunity costs and systematic risk," GRI Working Papers 67, Grantham Research Institute on Climate Change and the Environment.
    7. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
    8. Brouwer, Werner B. F. & van Exel, N. Job A., 2004. "Discounting in decision making: the consistency argument revisited empirically," Health Policy, Elsevier, vol. 67(2), pages 187-194, February.
    9. Bert van Wee, 2011. "Transport and Ethics," Books, Edward Elgar Publishing, number 14281.
    10. Szeto, Kam Leong & Devlin, Nancy J., 1996. "The cost-effectiveness of mammography screening: evidence from a microsimulation model for New Zealand," Health Policy, Elsevier, vol. 38(2), pages 101-115, November.
    11. Brouwer, Werner B. F. & Koopmanschap, Marc A., 2000. "On the economic foundations of CEA. Ladies and gentlemen, take your positions!," Journal of Health Economics, Elsevier, vol. 19(4), pages 439-459, July.
    12. Bleichrodt, Han & Quiggin, John, 1999. "Life-cycle preferences over consumption and health: when is cost-effectiveness analysis equivalent to cost-benefit analysis?," Journal of Health Economics, Elsevier, vol. 18(6), pages 681-708, December.
    13. Pinkerton, Steven D. & Johnson-Masotti, Ana P. & Derse, Arthur & Layde, Peter M., 2002. "Ethical issues in cost-effectiveness analysis," Evaluation and Program Planning, Elsevier, vol. 25(1), pages 71-83, February.
    14. James O’Mahony & Anthony Newall & Joost Rosmalen, 2015. "Dealing with Time in Health Economic Evaluation: Methodological Issues and Recommendations for Practice," PharmacoEconomics, Springer, vol. 33(12), pages 1255-1268, December.
    15. Cairns, John, 2006. "Developments in discounting: With special reference to future health events," Resource and Energy Economics, Elsevier, vol. 28(3), pages 282-297, August.
    16. Bert Wee & Piet Rietveld, 2013. "Using value of statistical life for the ex ante evaluation of transport policy options: a discussion based on ethical theory," Transportation, Springer, vol. 40(2), pages 295-314, February.
    17. Hugh Gravelle & Dave Smith, 2001. "Discounting for health effects in cost-benefit and cost-effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 587-599.

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