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

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  • 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.

Suggested Citation

  • Elamin H. Elbasha & Mark L. Messonnier, 2004. "Cost-effectiveness analysis and health care resource allocation: decision rules under variable returns to scale," Health Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 21-35.
  • Handle: RePEc:wly:hlthec:v:13:y:2004:i:1:p:21-35
    DOI: 10.1002/hec.793
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    Cited by:

    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.
    2. McKenna, Claire & Chalabi, Zaid & Epstein, David & Claxton, Karl, 2010. "Budgetary policies and available actions: A generalisation of decision rules for allocation and research decisions," Journal of Health Economics, Elsevier, vol. 29(1), pages 170-181, January.
    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.
    4. repec:ebl:ecbull:v:9:y:2005:i:7:p:1-8 is not listed on IDEAS
    5. Sun-Young Kim & Sue Goldie, 2008. "Cost-Effectiveness Analyses of Vaccination Programmes," PharmacoEconomics, Springer, vol. 26(3), pages 191-215, March.
    6. Eddy Adang, 2008. "Economic evaluation of innovative technologies in health care should include a short-run perspective," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 9(4), pages 381-384, November.

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