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Budget allocation and the revealed social rate of time preference for health

  • Mike Paulden

    (Centre for Health Economics, University of York, UK and Toronto Health Economics and Technology Assessment Collaborative, University of Toronto, Canada)

  • Karl Claxton

    (Centre for Health Economics, University of York, UK and Department of Economics and Related Studies, University of York, UK)

Appropriate decisions based on cost-effectiveness evaluations of health care technologies depend upon the cost-effectiveness threshold and its rate of growth as well as some social rate of time preference for health. The concept of the cost-effectiveness threshold, social rate of time preference for consumption and social opportunity cost of capital are briefly explored before the question of how a social rate of time preference for health might be established is addressed. A more traditional approach to this problem is outlined before a social decision making approach is developed which demonstrates that social time preference for health is revealed through the budget allocations made by a socially legitimate higher authority. The relationship between the social time preference rate for health, the growth rate of the cost-effectiveness threshold and the rate at which the higher authority can borrow or invest is then examined. We establish that the social time preference rate for health is implied by the budget allocation and the health production functions in each period. As such, the social time preference rate for health depends not on the social time preference rate for consumption or growth in the consumption value of health but on growth in the cost-effectiveness threshold and the rate at which the higher authority can save or borrow between periods. The implications for discounting and the policies of bodies such as NICE are then discussed.

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File URL: http://www.york.ac.uk/media/che/documents/papers/researchpapers/rp53_revealed_social_rate_of_time_preference_for_health.pdf
File Function: First version, 2009
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Paper provided by Centre for Health Economics, University of York in its series Working Papers with number 053cherp.

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Length: 20 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:chy:respap:53cherp
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  1. Hugh Gravelle & Werner Brouwer & Louis Niessen & Maarten Postma & Frans Rutten, 2007. "Discounting in economic evaluations: stepping forward towards optimal decision rules," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 307-317.
  2. McCabe, C & Claxton, K & Culyer, AJ, 2008. "The NICE Cost-Effectiveness Threshold: What it is and What that Means," MPRA Paper 26466, University Library of Munich, Germany.
  3. Brouwer, Werner B.F. & Culyer, Anthony J. & van Exel, N. Job A. & Rutten, Frans F.H., 2008. "Welfarism vs. extra-welfarism," Journal of Health Economics, Elsevier, vol. 27(2), pages 325-338, March.
  4. Francis Asenso-Boadi & Tim J. Peters & Joanna Coast, 2008. "Exploring differences in empirical time preference rates for health: an application of meta-regression," Health Economics, John Wiley & Sons, Ltd., vol. 17(2), pages 235-248.
  5. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58, pages 328.
  6. Martin, Stephen & Rice, Nigel & Smith, Peter C., 2008. "Does health care spending improve health outcomes? Evidence from English programme budgeting data," Journal of Health Economics, Elsevier, vol. 27(4), pages 826-842, July.
  7. Hugh Gravelle & Dave Smith, 2001. "Discounting for health effects in cost-benefit and cost-effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 587-599.
  8. Karl Claxton & Mark Sculpher & Tony Culyer, 2007. "Mark versus Luke? Appropriate Methods for the Evaluation of Public Health Interventions," Working Papers 031cherp, Centre for Health Economics, University of York.
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