Deriving welfare measures from discrete choice experiments: inconsistency between current methods and random utility and welfare theory
Discrete choice experiments (DCEs) are being used increasingly in health economics to elicit preferences for products and programs. The results of such experiments have been used to calculate measures of welfare or more specifically, respondents' 'willingness to pay' (WTP) for products and programs and their 'marginal willingness to pay' (MWTP) for the attributes that make up such products and programs. In this note we show that the methods currently used to derive measures of welfare from DCEs in the health economics literature are not consistent with random utility theory (RUT), or with microeconomic welfare theory more generally. The inconsistency with welfare theory is an important limitation on the use of such WTP estimates in cost-benefit analyses. We describe an alternative method of deriving measures of welfare (compensating variation) from DCEs that is consistent with RUT and is derived using welfare theory. We demonstrate its use in an empirical application to derive the WTP for asthma medication and compare it to the results elicited from the method currently used in the health economics literature. Copyright © 2004 John Wiley & Sons, Ltd.
Volume (Year): 13 (2004)
Issue (Month): 9 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749|
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.:
- Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
- Harvey S. Rosen & Kenneth A. Small, 1979.
"Applied Welfare Economics with Discrete Choice Models,"
NBER Working Papers
0319, National Bureau of Economic Research, Inc.
- Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
- Dorte Gyrd-Hansen & Jes Søgaard, 2001. "Analysing public preferences for cancer screening programmes," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 617-634.
- F. Reed Johnson & Melissa Ruby Banzhaf & William H. Desvousges, 2000. "Willingness to pay for improved respiratory and cardiovascular health: a multiple-format, stated-preference approach," Health Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 295-317.
- Adamowicz W. & Louviere J. & Williams M., 1994.
"Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities,"
Journal of Environmental Economics and Management,
Elsevier, vol. 26(3), pages 271-292, May.
- Adamowicz, Wiktor L. & Louviere, J. & Willians, M., 1992. "Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities," Staff Paper Series 232531, University of Alberta, Department of Resource Economics and Environmental Sociology.
- Propper, Carol, 1990. "Contingent Valuation of Time Spent on NHS Waiting Lists," Economic Journal, Royal Economic Society, vol. 100(400), pages 193-99, Supplemen.
- 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.
- Adamowicz, Wiktor & Swait, Joffre & Boxall, Peter & Louviere, Jordan & Williams, Michael, 1997. "Perceptions versus Objective Measures of Environmental Quality in Combined Revealed and Stated Preference Models of Environmental Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 65-84, January.
- Emily Lancsar, 2002. "Deriving welfare measures from stated preference discrete choice modelling experiments, CHERE Discussion Paper No 48," Discussion Papers 48, CHERE, University of Technology, Sydney.
- Ryan, Mandy & Wordsworth, Sarah, 2000. "Sensitivity of Willingness to Pay Estimates to the Level of Attributes in Discrete Choice Experiments," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(5), pages 504-24, November.
- Fernando San Miguel & Mandy Ryan & Emma McIntosh, 2000. "Applying conjoint analysis in economic evaluations: an application to menorrhagia," Applied Economics, Taylor & Francis Journals, vol. 32(7), pages 823-833.
- Carol Propper, 1995. "The Disutility of Time Spent on the United Kingdom's National Health Service Waiting Lists," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 677-700.
- Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304, September.
- Scott, Anthony, 2001. "Eliciting GPs' preferences for pecuniary and non-pecuniary job characteristics," Journal of Health Economics, Elsevier, vol. 20(3), pages 329-347, May.
- Mandy Ryan & Jenny Hughes, 1997. "Using Conjoint Analysis to Assess Women's Preferences for Miscarriage Management," Health Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 261-273.
When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:13:y:2004:i:9:p:901-907. 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 references are entirely missing, you can add them using this form.