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Axiomatic Foundations of Cost Effectiveness Analysis

  • David Canning

    ()

    (Harvard School of Public Health)

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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Paper provided by Program on the Global Demography of Aging in its series PGDA Working Papers with number 5109.

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Date of creation: Dec 2009
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Handle: RePEc:gdm:wpaper:5109
Contact details of provider: Web page: http://www.hsph.harvard.edu/pgda

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  17. Weinstein, Milton C. & Manning, Willard Jr., 1997. "Theoretical issues in cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 121-128, February.
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