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Axiomatic Foundations For Cost‐Effectiveness Analysis

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  • David Canning

Abstract

Cost-effectiveness analysis, which ranks projects by quality adjusted life years gained per dollar spent, is widely used in the evaluation of health interventions. We show that cost effectiveness analysis can be derived from two axioms: society prefers Pareto improvements and society values discounted life years, lived in perfect health, equally for each person. These axioms generate a unique social preference ordering, allowing us to find the cost effectiveness threshold to which health projects should be funded, and to extend cost effectiveness analysis to give a consistent method of project evaluation across all sectors of the economy.
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  • David Canning, 2013. "Axiomatic Foundations For Cost‐Effectiveness Analysis," Health Economics, John Wiley & Sons, Ltd., vol. 22(12), pages 1405-1416, December.
  • Handle: RePEc:wly:hlthec:v:22:y:2013:i:12:p:1405-1416
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    File URL: http://hdl.handle.net/10.1002/hec.2889
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    1. MORENO-TERNERO, Juan & OSTERDAL, Lars P., 2014. "Normative foundations for equity-sensitive population health evaluation functions," CORE Discussion Papers 2014031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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