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

Author

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  • 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)

Abstract

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.

Suggested Citation

  • Mike Paulden & Karl Claxton, 2009. "Budget allocation and the revealed social rate of time preference for health," Working Papers 053cherp, Centre for Health Economics, University of York.
  • Handle: RePEc:chy:respap:53cherp
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    12. Karl Claxton & Simon Walker & Steven Palmer & Mark Sculpher, 2010. "Appropriate Perspectives for Health Care Decisions," Working Papers 054cherp, Centre for Health Economics, University of York.
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    Cited by:

    1. Kittiphong Thiboonboon & Benjarin Santatiwongchai & Varit Chantarastapornchit & Waranya Rattanavipapong & Yot Teerawattananon, 2016. "A Systematic Review of Economic Evaluation Methodologies Between Resource-Limited and Resource-Rich Countries: A Case of Rotavirus Vaccines," Applied Health Economics and Health Policy, Springer, vol. 14(6), pages 659-672, December.
    2. Mike Paulden & Anthony J Culyer, 2010. "Does cost-effectiveness analysis discriminate against patients with short life expectancy? Matters of logic and matters of context," Working Papers 055cherp, Centre for Health Economics, University of York.
    3. James F. O’Mahony & Mike Paulden & Chris McCabe, 2021. "NICE’s Discounting Review: Clear Thinking on Rational Revision Meets Obstacle of Industrial Interests," PharmacoEconomics, Springer, vol. 39(2), pages 139-146, February.
    4. Basu, Anirban, 2020. "A welfare-theoretic model consistent with the practice of cost-effectiveness analysis and its implications," Journal of Health Economics, Elsevier, vol. 70(C).
    5. James O’Mahony & Anthony Newall & Joost Rosmalen, 2015. "Dealing with Time in Health Economic Evaluation: Methodological Issues and Recommendations for Practice," PharmacoEconomics, Springer, vol. 33(12), pages 1255-1268, December.
    6. Doug Coyle & Isabelle Durand-Zaleski & Jasmine Farrington & Louis Garrison & Johann-Matthias Graf von der Schulenburg & Wolfgang Greiner & Louise Longworth & Aurélie Meunier & Anne-Sophie Moutié & Ste, 2020. "HTA methodology and value frameworks for evaluation and policy making for cell and gene therapies," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(9), pages 1421-1437, December.
    7. Karl Claxton & Simon Walker & Steven Palmer & Mark Sculpher, 2010. "Appropriate Perspectives for Health Care Decisions," Working Papers 054cherp, Centre for Health Economics, University of York.
    8. Claxton, Karl & Asaria, Miqdad & Chansa, Collins & Jamison, Julian & Lomas, James & Ochalek, Jessica & Paulden, Mike, 2019. "Accounting for Timing when Assessing Health-Related Policies," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 10(S1), pages 73-105, April.
    9. Mike Paulden & James O’Mahony & Anthony Culyer & Christopher McCabe, 2014. "Some Inconsistencies in NICE’s Consideration of Social Values," PharmacoEconomics, Springer, vol. 32(11), pages 1043-1053, November.
    10. Claxton, Karl & Asaria, Miqdad & Chansa, Collins & Jamison, Julian & Lomas, James & Ochalek, Jessica & Paulden, Mike, 2019. "Accounting for timing when assessing health-related policies," LSE Research Online Documents on Economics 100038, London School of Economics and Political Science, LSE Library.
    11. Mike Paulden & Anthony J. Culyer, 2010. "Does Cost-Effectiveness Analysis Discriminate against Patients with Short Life Expectancy?," Working Paper series 41_10, Rimini Centre for Economic Analysis.

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    More about this item

    Keywords

    Economic evaluation. Discounting. Cost-effectiveness analysis;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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