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Axiomatic Foundations For Cost‐Effectiveness Analysis

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  • David Canning

Abstract

We show that individual utilities can be measured in units of healthy life years. Social preferences over these life metric utilities are assumed to satisfy the Pareto principle, anonymity, and invariance to a change in origin. These axioms generate a utilitarian social welfare function implying the use of cost‐effectiveness analysis in ordering health projects, based on maximizing the healthy years equivalents gained from a fixed health budget. For projects outside the health sector, our cost‐effectiveness axioms imply a form of cost–benefit analysis where both costs and benefits are measured in equivalent healthy life years. Copyright © 2013 John Wiley & Sons, Ltd.

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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
    DOI: 10.1002/hec.2889
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    3. Hammitt, James K., 2020. "Accounting for the distribution of benefits & costs in benefit-cost analysis," TSE Working Papers 20-1116, Toulouse School of Economics (TSE).

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