14th journées Louis-André Gérard-Varet

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Primus Inter Pares: Welfare Ranking of Equally Cost-Effective Alternatives
Vicky Barham, Olga Milliken

Last modified: 2015-03-13


Cost-effectiveness analysis (CEA) - which ranks alternative health care procedures in terms of cost with respect to expected improvement in health - is widely used by health policy makers in publicly-funded health systems to guide decisions concerning the allocation of health dollars.  In a multi-period model, however, procedures which are equally cost-effective, will not typically be equivalent with respect to social welfare. In this paper we show that, in choosing between alternative packages of equally cost-effective treatments, those which reduce the variance of expected health outcomes are preferred, as they allow consumers to also better smooth consumption.  We also show that, if policy makers are concerned with social welfare, the cost-effectiveness threshold for approving treatments offered in the context of end-of-life care may be lower than for health care treatments  provided to younger individuals.  Moreover, given the choice between packages of treatment which maximize cost-effectiveness, and alternative health care options, individuals may prefer less cost-effective health care procedures if this reduces the variance in expected health outcomes, allowing them to better smooth consumption.


Cost-Effectiveness Analysis