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Deriving welfare measures from discrete choice experiments: inconsistency between current methods and random utility and welfare theory

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  • Emily Lancsar

    (Business School (Economics) and Centre for Health Services Research, University of Newcastle upon Tyne, UK)

  • Elizabeth Savage

    (CHERE, University of Technology, Sydney, Australia)

Abstract

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.

Suggested Citation

  • Emily Lancsar & Elizabeth Savage, 2004. "Deriving welfare measures from discrete choice experiments: inconsistency between current methods and random utility and welfare theory," Health Economics, John Wiley & Sons, Ltd., vol. 13(9), pages 901-907.
  • Handle: RePEc:wly:hlthec:v:13:y:2004:i:9:p:901-907
    DOI: 10.1002/hec.870
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    References listed on IDEAS

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    Cited by:

    1. Nieboer, Anna P. & Koolman, Xander & Stolk, Elly A., 2010. "Preferences for long-term care services: Willingness to pay estimates derived from a discrete choice experiment," Social Science & Medicine, Elsevier, vol. 70(9), pages 1317-1325, May.
    2. Parkinson, Bonny & Goodall, Stephen, 2011. "Considering consumer choice in the economic evaluation of mandatory health programmes: A review," Health Policy, Elsevier, vol. 101(3), pages 236-244, August.
    3. Jensen, Jørgen Dejgaard & Mørkbak, Morten Raun & Nordström, Jonas, 2012. "Economic Costs and Benefits of Promoting Healthy Takeaway Meals at Workplace Canteens," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 3(04), pages 1-27, December.
    4. Ladenburg, Jacob & Olsen, Søren Bøye, 2014. "Augmenting short Cheap Talk scripts with a repeated Opt-Out Reminder in Choice Experiment surveys," Resource and Energy Economics, Elsevier, vol. 37(C), pages 39-63.
    5. Deborah A. Marshall & F. Reed Johnson & Nathalie A. Kulin & Semra Özdemir & Judith M. E. Walsh & John K. Marshall & Stephanie Van Bebber & Kathryn A. Phillips, 2009. "How do physician assessments of patient preferences for colorectal cancer screening tests differ from actual preferences? A comparison in Canada and the United States using a stated-choice survey," Health Economics, John Wiley & Sons, Ltd., vol. 18(12), pages 1420-1439.
    6. Goodall, Stephen & King, Madeleine & Ewing, Jane & Smith, Narelle & Kenny, Patricia, 2012. "Preferences for support services among adolescents and young adults with cancer or a blood disorder: A discrete choice experiment," Health Policy, Elsevier, vol. 107(2), pages 304-311.
    7. Trine Kjær & Mickael Bech & Christian Kronborg & Morten Mørkbak, 2013. "Public preferences for establishing nephrology facilities in Greenland: estimating willingness-to-pay using a discrete choice experiment," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(5), pages 739-748, October.
    8. repec:eee:ecoser:v:18:y:2016:i:c:p:58-67 is not listed on IDEAS
    9. repec:spr:pharme:v:35:y:2017:i:7:d:10.1007_s40273-017-0506-4 is not listed on IDEAS
    10. Richard Norman & Gisselle Gallego, 2008. "Equity weights for economic evaluation: An Australian Discrete Choice Experiment, CHERE Working Paper 2008/5," Working Papers 2008/5, CHERE, University of Technology, Sydney.
    11. repec:spr:hecrev:v:7:y:2017:i:1:d:10.1186_s13561-017-0162-6 is not listed on IDEAS
    12. Scott, Anthony & Witt, Julia & Humphreys, John & Joyce, Catherine & Kalb, Guyonne & Jeon, Sung-Hee & McGrail, Matthew, 2013. "Getting doctors into the bush: General Practitioners' preferences for rural location," Social Science & Medicine, Elsevier, vol. 96(C), pages 33-44.
    13. Hackbarth, André & Madlener, Reinhard, 2016. "Willingness-to-pay for alternative fuel vehicle characteristics: A stated choice study for Germany," Transportation Research Part A: Policy and Practice, Elsevier, vol. 85(C), pages 89-111.
    14. Rinaldo Brau & Matteo Lippi Bruni, 2008. "Eliciting the demand for long-term care coverage: a discrete choice modelling analysis," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 411-433.
    15. Lancsar, Emily & Wildman, John & Donaldson, Cam & Ryan, Mandy & Baker, Rachel, 2011. "Deriving distributional weights for QALYs through discrete choice experiments," Journal of Health Economics, Elsevier, vol. 30(2), pages 466-478, March.
    16. Axel Mühlbacher & F. Reed Johnson, 2016. "Choice Experiments to Quantify Preferences for Health and Healthcare: State of the Practice," Applied Health Economics and Health Policy, Springer, vol. 14(3), pages 253-266, June.
    17. Lancsar, Emily & Louviere, Jordan & Flynn, Terry, 2007. "Several methods to investigate relative attribute impact in stated preference experiments," Social Science & Medicine, Elsevier, vol. 64(8), pages 1738-1753, April.
    18. repec:eee:hepoli:v:121:y:2017:i:11:p:1154-1160 is not listed on IDEAS
    19. Emily Lancsar & Cam Donaldson, 2005. "Discrete choice experiments in health economics," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 6(4), pages 314-316, December.
    20. Alessandro Mengoni & Chiara Seghieri & Sabina Nuti, 2013. "The application of discrete choice experiments in health economics: a systematic review of the literature," Working Papers 201301, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.
    21. Emily Lancsar & Peter Burge, 2014. "Choice modelling research in health economics," Chapters,in: Handbook of Choice Modelling, chapter 28, pages 675-687 Edward Elgar Publishing.
    22. Carol Mansfield & Daniel J. Phaneuf & F. Reed Johnson & Jui-Chen Yang & Robert Beach, 2008. "Preferences for Public Lands Management under Competing Uses: The Case of Yellowstone National Park," Land Economics, University of Wisconsin Press, vol. 84(2), pages 282-305.

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