IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

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

  • 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)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Link to full text; subscription required
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 10 (2001)
Issue (Month): 7 ()
Pages: 587-599

in new window

Handle: RePEc:wly:hlthec:v:10:y:2001:i:7:p:587-599
Contact details of provider: Web page:

References listed on IDEAS
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.:

as in new window
  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. Johansson,Per-Olov, 1995. "Evaluating Health Risks," Cambridge Books, Cambridge University Press, number 9780521478786, October.
  3. 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.
  4. 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.
  5. 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.
  6. Kenneth J. Arrow, . "Intergenerational Equity and the Rate of Discount in Long-Term Social Investment," Working Papers 97005, Stanford University, Department of Economics.
  7. 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.
  8. Johansson,Per-Olov, 1995. "Evaluating Health Risks," Cambridge Books, Cambridge University Press, number 9780521472852, October.
  9. Emmett B. Keeler & Shan Cretin, 1983. "Discounting of Life-Saving and Other Nonmonetary Effects," Management Science, INFORMS, vol. 29(3), pages 300-306, March.
  10. Klose, Thomas, 1999. "The contingent valuation method in health care," Health Policy, Elsevier, vol. 47(2), pages 97-123, May.
  11. 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.
  12. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:10:y:2001:i:7:p:587-599. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.