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

Author Info

  • 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.

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File URL: http://hdl.handle.net/10.1002/hec.870
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 13 (2004)
Issue (Month): 9 ()
Pages: 901-907

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Handle: RePEc:wly:hlthec:v:13:y:2004:i:9:p:901-907
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
  11. 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.
  12. 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.
  13. Propper, Carol, 1990. "Contingent Valuation of Time Spent on NHS Waiting Lists," Economic Journal, Royal Economic Society, vol. 100(400), pages 193-99, Supplemen.
  14. 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.
  15. 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.
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Cited by:

  1. Jørgen Dejgaard Jensen & Morten Raun Mørkbak & Jonas Nordström, 2011. "Economic costs and benefits of promoting healthy takeaway meals at workplace canteens," IFRO Working Paper 2011/17, University of Copenhagen, Department of Food and Resource Economics.
  2. 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.
  3. Jacob Ladenburg & Søren Bøye Olsen, 2010. "Augmenting short Cheap Talk scripts with a repeated Opt-Out Reminder in Choice Experiment surveys," IFRO Working Paper 2010/9, University of Copenhagen, Department of Food and Resource Economics.
  4. 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.
  5. Hackbarth, André & Madlener, Reinhard, 2013. "Willingness-to-Pay for Alternative Fuel Vehicle Characteristics: A Stated Choice Study for Germany," FCN Working Papers 20/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.

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