a test of independence of discounting from quality of life the quality adjusted life years qaly model assumes quality and quantity of life can be multiplied into a single index and requires quality and quantity to be mutually independent which need not hold empirically this paper proposes a new test for measuring independence of utility of life duration from quality of life in a riskless setting we use a large representative sample of dutch citizens and include two health states generally considered better than dead btd and one health state considered worse than dead wtd independence cannot be rejected when comparing the btd health states but is rejected when comparing the btd states with the wtd state in particular utility of life duration becomes more concave for the wtd state this may suggest that independence holds only for btd health states this has implications for the qaly model and would require using sign dependent utility of life duration functions

improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

a consistency test of the time trade off this paper tests the internal consistency of time trade off utilities we find significant violations of consistency in the direction predicted by loss aversion the violations disappear for higher gauge durations we show that loss aversion can also explain that for short gauge durations time trade off utilities exceed standard gamble utilities our results suggest that time trade off measurements that use relatively short gauge durations like the widely used euroqol algorithm are affected by loss aversion and lead to utilities that are too high

on eliciting beliefs in strategic games several recent studies in experimental economics have tried to measure beliefs of subjects engaged in strategic games with other subjects using data from one such study we conduct an experiment where our experienced subjects observe early rounds of strategy choices from that study and are given monetary incentives to report forecasts of choices in later rounds we elicit beliefs using three different scoring rules linear logarithmic and quadratic we compare forecasts across the scoring rules and compare the forecasts of our trained observers to forecasts of the actual players in the original experiment we find significant differences across scoring rules the improper linear scoring rule produces forecasts closer to 0 and 1 than the proper rules and these forecasts are poorly calibrated the two proper scoring rules induce significantly different distributions of forecasts we find that forecasts by observers under both proper scoring rules are significantly different from the forecasts of the actual players in terms of accuracy calibration and the distribution of forecasts we also find evidence for belief convergence among the observers

increasing marginal utility of small increases in life expectancy results from a population survey abstract the standard practice in cost effectiveness analyses of health care is to assign a linear value to increasing lifetime gains the aim of the current study was to examine the possible existence of non linear utility for short life extensions a representative sample of the norwegian population aged 40 59 years n 2402 was asked to imagine that they had a limited remaining lifetime 1 year or 10 years and were offered a treatment that would increase lifetime by a specified amount of time from 1 week to 1 year in all scenarios the price per week of life extension was held constant the proportion of respondents that accepted the treatment increased with increasing extensions indicating a convex utility function the result suggests increasing marginal utility for life extensions up to 1 year

welfare maximizing inflation rates under fractional reserve banking with and without deposit rate ceilings note 1 lntroduction friedman 1971 in his paper on the revenue maximizing rate of inflation notes three possible monetary regimes 1 the government as sole issuer of non interest bearing money 2 a model with competitive banking and fractional reserve requirements and 3 a fractional reserve system with an effective restriction on interest payments calvo and fernandez 1983 show that maximal government revenues are not different between the first two classes but the revenue maximizing rate of inflation increases without bound as the reserve ratio falls 1 section 2 will argue that under a deposit rate ceiling friedman s third case the revenue maximizing rate of inflation is unaltered or even lowered by fractional reserve banking while the maximal revenues fall bailey 1956 tower 1971 and several other papers have focused on the welfare maximizing rate of inflation unless the marginal cost of explicit tax finance and the marginal benefit of government expenditures are infinite a welfaremaximizing government would not pursue inflationary finance to the revenuemaximizing rate section 3 will extend an analysis similar to tower s to explore the implications of fractional reserve banking with deposit ceilings recent banking deregulation has tended towards removing the restrictions on competitive banking section 4 will argue that in a competitive banking model the welfare maximizing rate of inflation may rise or fall

the role of offsets in a post kyoto climate agreement the power sector in china abstract this paper considers how an offset scheme specific to the electricity generation sector could incentivize emissions cuts while avoiding the problems encountered by the clean development mechanism cdm it proposes an approach to project evaluation based on measures of additionality economic viability and contribution to sustainable development specific to this sector and re evaluates 460 registered cdm projects in china that generate electricity using wind natural gas or small hydro it concludes that many small hydro schemes would be viable without the cdm subsidy although these projects have zero emissions from operations offsets issued to projects that are viable without subsidy permit increased emissions in developed countries and lead to a net increase in global emissions to provide some indication of the sustainable development benefits that cdm projects bring to their host countries the paper includes estimates of the projects benefit to public health due to the reduced use of coal for generation the paper provides insights into the economics of projects and their value to host countries that are missed by the official cdm methodologies it contributes to the debate over the design of sector specific offset schemes that may be part of a new global agreement on combating climate change

economics health and health economics hyes healthy years equivalent versus qalys quality adjusted live year this paper responds to culyer and wagstaff s cw and buckingham s b arguments we refute their claim about the equivalence of hyes and qalys they fail to distinguish between choice under uncertainty and under certainty cw assume that all individuals have a specific form of utility function which yields their conclusion of equivalence b s arguments confuse the measurement technique and the utility theory from which it stems his argument about the normative superiority of the qaly construct is inconsistent with economic thinking the hye by being compatible with the principles of economics is superior to the qaly for economic evaluations of health care interventions

qalys and hyes under what conditions are they equivalent the paper examines what restrictions have to be imposed on the individual s preference structure for qalys and hyes to yield identical results it is shown that using qalys involves imposing three additional restrictions empirical evidence suggests that these restrictions cannot be expected to hold in all applications the main problem in using hyes appears to be practical an alternative index is proposed that may help to bridge the gap between qalys and hyes by combining to some extent the advantages of the two measures

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

or forum perspectives on utility theory utility theory is a branch of decision analysis that is concerned with building models to explain and guide choice behavior under uncertainty in situations in which long run expected values are too simplistic beginning with bernoulli in the 18th century researchers have tried to analyze how people do and how people should make decisions when risk aversion is a factor in this paper we review some recent developments in the area

traders expectations in asset markets experimental evidence we elicit traders predictions of future price trajectories in repeated experimental markets for a 15 period lived asset we find that individuals beliefs about prices are adaptive and primarily based on past trends in the current and previous markets in which they have participated most traders do not anticipate market downturns the first time they participate in a market and when experienced they typically overestimate the time remaining before market peaks and downturns occur when prices deviate from fundamental values belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks

a new axiomatic approach to the evaluation of population health in this paper we explore the implications of normative principles for the evaluation of population health we formalize those principles as axioms for social preferences over distributions of health for a given population we single out several focal population health evaluation functions which represent social preferences as a result of combinations of those axioms our results provide new rationale for popular theories in health economics such as the unweighted aggregation of quality adjusted life years qalys or healthy years equivalents hyes and generalizations of the two aimed to capture concerns for distributive justice without resorting to controversial assumptions on individual preferences

principles of fiscal and monetary policy abstract this paper describes a complete and internally consistent set of principles for the conduct of a welfare maximizing fiscal and monetary policy issues of time consistency that arise in applying these principles to actual economics are also discussed

the predictive validity of prospect theory versus expected utility in health utility measurement most health care evaluations today still assume expected utility even though the descriptive deficiencies of expected utility are well known prospect theory is the dominant descriptive alternative for expected utility this paper tests whether prospect theory leads to better health evaluations than expected utility the approach is purely descriptive we explore how simple measurements together with prospect theory and expected utility predict choices and rankings between more complex stimuli for decisions involving risk prospect theory is significantly more consistent with rankings and choices than expected utility this conclusion no longer holds when we use prospect theory utilities and expected utilities to predict intertemporal decisions the latter finding cautions against the common assumption in health economics that health state utilities are transferable across decision contexts our results suggest that the standard gamble and algorithms based on should not be used to value health

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

the n dimensional bailey divisia measure as a general equilibrium measure of the welfare costs of inflation abstract this paper shows that in economies with several monies the bailey divisia multidimensional consumers surplus formula may emerge as an exact general equilibrium measure of the welfare costs of inflation provided that preferences are quasilinear

risk risk versus standard gamble procedures for measuring health state utilities contingent valuation cv has been widely used to measure the potential benefits derived from different policy decisions however doubt now exists about the validity of the cv method and alternative approaches to benefit valuation have been proposed the paper reports on the results of a study which was designed to test the viability of two of the most prominent of the alternatives the risk risk rr and standard gamble sg approaches if individual preferences are consistent with the axioms of von neumann morgenstern expected utility theory eut then the two methods should generate the same interval scales for any given set of health states however the results show that sg utilities are substantially higher than rr ones thus casting doubt on these axioms the paper discusses alternatives to eut which might better expalin the discrepancies found it also considers whether the results might be explained in terms of status quo bias and or by the relative difficulty of rr questions the results presen

an investigation of the rationality of consumer valuations of multiple health risks after developing a conceptual analysis of consumer valuation of multiple risks we explore both economic and cognitive hypotheses regarding individual risk taking using a sample of over 1 500 consumers our study ascertains risk dollar tradeoffs for the risks associated with using an insecticide and a toilet bowl cleaner we observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases we also find evidence of certainty premiums for the total elimination of one risk but no strong evidence of additional certainty premiums for the elimination of multiple risks strong reference risk effects are evident as increases in risk were valued much more greatly than were decreases

hye and tto what is the difference this paper demonstrates that the hye healthy years equivalent procedure not only has nothing more to offer than the tto time trade off method but that it introduces a systematic bias that is not present using tto diagrams are used to illustrate that the hye yields health status values not utilities as its creators suggest and to show that the hye and tto techniques are theoretically identical then empirical evidence concerning the standard gamble certainty equivalence disparity noted elsewhere in the literature is shown to indicate that hye responses are likely to contain systematic biases that will lead to hye estimates exceeding tto values

the correction of tto scores for utility curvature using a risk free utility elicitation method this paper describes and employs a new method to correct time tradeoff tto scores for utility of life duration curvature in contrast to most previous attempts to do so it uses a risk free method that corresponds well to the risk free properties of the tto method in addition the method is robust to several biases that occur under methods that incorporate risk our results show a significant degree of curvature in utility of life duration and therefore a clear bias in tto scores the risk free method seems to be useful to correct tto scores for this influence and leads to significantly higher quality adjustment factors

prospect theory in the health domain a quantitative assessment it is well known that expected utility eu has empirical deficiencies cumulative prospect theory cpt has developed as an alternative with more descriptive validity however cpt s full function had not yet been quantified in the health domain this paper is therefore the first to simultaneously measure utility of life duration probability weighting and loss aversion in this domain we observe loss aversion and risk aversion for gains and losses which for gains can be explained by probabilistic pessimism utility for gains is almost linear for losses we find less weighting of probability 1 2 and concave utility this contrasts with the common finding of convex utility for monetary losses however cpt was proposed to explain choices among lotteries involving monetary outcomes life years are arguably very different from monetary outcomes and need not generate convex utility for losses moreover utility of life duration reflects discounting causing concave utility

the time trade off a note on the effect of lifetime reallocation of consumption and discounting this paper considers the extent to which responses to time trade off tto questions can provide unbiased estimates of ratios of individual marginal rates of substitution mrs of wealth for risk of various health state impairments relative to the corresponding mrs for risk of death it is shown that if there is reallocation of lifetime consumption and or discounting of future utilities then a tto response that is not adjusted for these effects will unambiguously overestimate the ratios of individual mrs while the effect of reallocation is likely to be very small discounting can lead to significant overestimation the magnitude of which depends in part upon the severity of the health state impairment

measurement of consumer patient preferences using a hybrid contingent valuation method this study introduces a hybrid two stage contingent valuation method applied to asthma treatment respondents are initially offered a choice between hypothetical medications implying a tradeoff between safety and efficacy stage two elicits willingness to pay wtp for an improvement along a single risk dimension estimates of the value of asthma control based on the initial risk tradeoff stage range from approximately us 1400 to us 2100 per year assuming a us 6 million value of life analysis of the second stage wtp responses yield estimates for the value of a statistical life of approximately us 9 million and for asthma control of approximately us 2200 per year

economic valuation of health for environmental policy comparing alternative approaches introduction and overview protecting human health is a primary goal of environmental policy and economic evaluation of health can help policy makers judge the relative worth of alternative actions economists use two distinct approaches in normatively evaluating health whereas environmental economists use benefit cost analysis supported by monetary valuation in terms of willingness to pay health economists evaluate interventions based on cost effectiveness or cost utility analysis cea using quality adjusted life years qaly or similar indexes this paper provides background on the controversy about the relative merits of these approaches and introduces the remaining papers in the special issue these papers with one exception were presented at a conference sponsored by the department of economics at the university of central florida with support from the us environmental protection agency although cea might not lead to substantially different implications for environmental policy than benefit cost analysis and qaly may provide a benefit transfer tool to fill gaps in the morbidity valuation literature the papers in this issue raise serious concerns about the suitability of qaly based cea for environmental regulatory analysis qaly does not in general appropriately represent individual preferences for health and cea is neither independent of income distribution nor adequate to assess efficiency

a note on the integrability of partial equilibrium measures of the welfare costs of inflation multidimensional measures of the welfare costs of inflation have been employed in the literature without an explicit concern of how the demand for the respective monetary assets are generated and without an investigation of the respective integrability conditions this note establishes conditions under which such welfare measures are well defined

a context dependent model of the gambling effect this paper presents a context dependent theory of decision under risk the relevant contextual factor is the presence of a riskless lottery in a preference comparison the theory only deviates from expected utility if the set of options contains both riskless and risky lotteries the main motivation for the theory is to explain the gambling effect contrary to previous theories of the gambling effect the present theory is consistent with stochastic dominance it can however violate transitivity the theory allows for a decomposition of the interaction between risk aversion and gambling aversion and thereby extends the classical arrow pratt measure of risk aversion

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

information aggregation and belief elicitation in experimental parimutuel betting markets this paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets in one treatment groups of eight participants who possess a private signal about the eventual outcome play a sequential betting game the second treatment is identical except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome in the third treatment the same individuals make bets and assess the winning probabilities of the outcomes market probabilities more accurately reflect objective probabilities in the third than in the other two treatments submitting beliefs reduces the favorite longshot bias and making bets improves the accuracy of elicited beliefs a level k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information

cost effectiveness utility analyses do current decision rules lead us to where we want to be despite the growing literature on economic evaluation of health care programmes little attention has been paid to the theoretical foundations of cost effectiveness and cost utility analyses and the validity of the decision rules adopted as methods of achieving the stated goals we show that although applications of the techniques can be used to pursue some managerial objectives in the context of highly constrained environments such applications are inconsistent with both welfare economic objectives and the interpretations of the findings of these applications alternative strategies are identified as potential and practical methods for pursuing welfare economic objectives

anti social welfare functions a reply to hansen et al we could reasonably expect society to give at least the same weight to the marginal utility of the poor as to the rich and to the marginal utility of the ill as compared to the healthy whilst hansen et al journal of health economics 2004 may be said to link cea and cba within a welfarist framework the assumptions they require are inconsistent with these types of ethical preferences thus the degree to which they employ a reasonable social welfare function is doubtful this paper argues that any link between cea and cba will occur not within a welfarist framework but instead within a non welfarist one in which it is unlikely that cba results could be easily transformed into cost effectiveness ratios

expo power utility a flexible form for absolute and relative risk aversion a new utility function which i call expo power is proposed that exhibits decreasing constant or increasing absolute risk aversion and decreasing or increasing relative risk aversion depending on parameter values numerical analysis suggests that the expo power function performs well in incorporating these risk preference structures and that arbitrary risk preference specifications may lead to biased risk response estimates

wtp and qaly based approaches to valuing health for policy common ground and disputed territory this paper discusses links between two approaches to the value of health the willingness to pay approach of environmental economics and the quality adjusted life year approach of health economics the approaches are used in cost benefit and cost effectiveness analyses of health interventions despite fundamental differences in the decision contexts and conceptual foundations of the two approaches in current practice they are likely to lead to similar policy decisions the paper also shows how research on the quality adjusted life year qaly can be used to fill in gaps in the willingness to pay literature the paper sketches a simple model that shows how to qaly fy the value of a statistical life i e how to combine qaly estimates with estimates of the value of a statistical life to estimate willingness to pay for morbidity risks

a note on eliciting distributive preferences for health while in theory the strength of preferences for equity in health can be expressed in an inequality aversion parameter in practice analysts would have to obtain them from people s choices we are faced with a number of methodological problems when turning to this type of empirical research this note investigates which types of preference could explain the choices people make when responding to equity efficiency questions of this kind respondents may be heavily influenced by concerns that are not related to their equity preferences something which may lead them to choose distributions that are not consistent with models on the equity efficiency trade off specifically a threshold effect is identified which could explain why some people would rather prefer to concentrate than to diffuse health gains the second aim of this note is to offer some lessons from a survey which was designed for eliciting people s distributive preferences for health gains

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

optimal inflation rates a generalization note in his classic article the welfare cost of inflationary finance 1956 bailey indicted the use of the printing presses to raise resources on the grounds that the average ratio of the welfare cost to the revenue becomes excessive at moderate rates of inflation he generalized these results to a competitive banking system paying interest on its deposits but subject to a sterile legal reserve requirement any single bank would be forced by competition to pay interest on its deposits equal to the yield on its assets times l f wheret is the legal reserve ratio the opportunity cost of holding deposits is then the return on assets minus the yield on deposits which in turn is equal to the yield on assets timest bailey assumed the real rate was zero not a crucial assumption and that at high enough rates of inflation no one would use currency so that all money would be held as interest bearing deposits 1 the opportunity cost of holding deposits would then be the actual and anticipated rate of inflation tr times the reserve ratio while the seignorage accruing to the authorities would be trfm p the return on assets 7rm p multiplied by the ratio of high powered money to the money supply bailey showed that to get the same tax revenue as in a pure currency system t 1 the authorities must inflate at a much higher rate namely the rate of inflation whent 1 times the reciprocal of the reserve ratio r l t a reduction in the reserve ratio raises the inflation rate needed to command the same resources a proposition rediscovered by calvo and fernandez 1983 a1

on the possibility of a bridge between cba and cea comments on a paper by dolan and edlin in a recent work by dolan and edlin it is concluded that no link can be established between cost benefit analysis cba and cost effectiveness analysis cea however the conclusion seems to depend rather heavily on what is understood by a link between cba and cea as well as on the exact meaning of the latter two terms we argue that there is at least one approach to cba and cea in which the two are very intimately linked on the other hand the limitations in the access to preference information has consequences for the kind of questions that can be meaningfully addressed in both cba and cea

a nonparametric elicitation of the equity efficiency trade off in cost utility analysis we performed an empirical elicitation of the equity efficiency trade off in cost utility analysis using the rank dependent quality adjusted life year qaly model a model that includes as special cases many of the social welfare functions that have been proposed in the literature our elicitation method corrects for utility curvature and therefore our estimated equity weights are not affected by diminishing marginal utility we observed a preference for equality in the allocation of health the data suggest that the elicited equity weights were jointly determined by preferences for equality and by insensitivity to group size a procedure is proposed to correct the equity weights for insensitivity to group size finally we give an illustration how our method can be implemented in health policy

qalys versus hyes this paper explores the claim that qalys are liable to misrepresent consumer preferences and hence lead to decision makers choosing options which are not those preferred by the public it also considers the claim that hyes do not suffer from this defect we argue that none of the examples offered to date demonstrate the alleged tendency of qalys to misrepresent preferences we also show that hyes are identical to qaly scores obtained from a time tradeoff experiment and therefore that the assumptions about preferences underlying hyes are just as restrictive as those underlying tto based qalys

evaluation of public investment in health care is the risk irrelevant abstract in this note we discuss the application of developments in economic theory to the evaluation of risky public health programs we show that the use of expected values as measures of outcome in such programs is inappropriate instead we suggest the use of certainty equivalent values measured by a direct assessment the standard gamble as an appropriate way to evaluate the outcome

is it really possible to build a bridge between cost benefit analysis and cost effectiveness analysis cost benefit analysis cba is a recognised as the economic evaluation technique that accords most with the underlying principles of standard welfare economic theory however due to problems associated with the technique economists evaluating resources allocation decisions in health care have most often used cost effective analysis cea in which health benefits are expressed in non monetary units as a result attempts have been made to build a welfare economic bridge between cost benefit analysis cba and cost effectiveness analysis cea in this paper we develops these attempts and finds that while assumptions can be made to facilitate a constant willingness to pay per unit of health outcome these restrictions are highly unrealistic we develop an impossibility theorem that shows it is not possible to link cba and cea if i the axioms of expected utility theory hold ii the quality adjusted life year qaly model is valid in a welfare economic sense and iii illness affects the ability to enjoy consumption we conclude that within a welfare economic framework it would be unwise to rely on a link between cba and cea in economic evaluations

life cycle preferences over consumption and health when is cost effectiveness analysis equivalent to cost benefit analysis this paper studies life cycle preferences over consumption and health status we show that cost effectiveness analysis is consistent with cost benefit analysis if the lifetime utility function is additive over time multiplicative in the utility of consumption and the utility of health status and if the utility of consumption is constant over time we derive the conditions under which the lifetime utility function takes this form both under expected utility theory and under rank dependent utility theory which is currently the most important nonexpected utility theory if cost effectiveness analysis is consistent with cost benefit analysis it is possible to derive tractable expressions for the willingness to pay for quality adjusted life years qalys the willingness to pay for qalys depends on wealth remaining life expectancy health status and the possibilities for intertemporal substitution of consumption

competitive banks and the inflation tax abstract the purpose of this note is to show that the presence of a competitive banking sector has important quantitative implications for the revenue maximizing rate of inflation

accounting for future costs in medical cost effectiveness analysis most medical cost effectiveness analyses include future costs only for related illnesses but this approach is controversial this paper demonstrates that cost effectiveness analysis is consistent with lifetime utility maximization only if it includes all future medical and non medical expenditures estimates of the magnitude of these future costs suggest that they may substantially alter both the absolute and relative cost effectiveness of medical interventions particularly when an intervention increases length of life more than quality of life in older populations current methods overstate the cost effectiveness of interventions which extend life compared to interventions which improve the quality of life

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

indeterminacy of equilibria in a hyperinflationary world experimental evidence the authors design and study an olg experimental economy where the government finances a fixed real deficit through seigniorage the economy has continua of nonstationary rational expectations equilibria and two stationary rational expectations equilibria the authors do not observe nonstationary rational expectations paths observed paths tend to converge close to or somewhat below the low inflation stationary state the adaptive learning hypothesis is consistent with the data in selecting the low inflation stationary state rational expectations equilibrium as a long run stationary equilibrium nevertheless simple adaptive learning models do not capture the market uncertainty or the biases observed in the data copyright 1993 by the econometric society

a new and more robust test of qalys previous empirical tests of quality adjusted life years qalys the most widely used outcome measure in economic evaluations of health care generally yielded negative results these tests were however for the most part based on expected utility which is now widely acknowledged to be descriptively inaccurate the observed violations might therefore have been caused by violations of expected utility we performed a new test of qalys which is valid under expected utility and under the two most influential non expected utility theories rank dependent utility and prospect theory and found considerable support for the qaly model our findings suggest that qalys may be valid if nonexpected utility formulas are used to compute health state utilities

qalys standard gambles and the expected budget constraint this paper shows that when quality adjustment factors for use in constructing qaly indices are established through answers to standard gamble questions or similar methods the assumptions that are made by respondents about the financial consequences of changing probabilities of illness and death are critically important for the use of qalys in cost utility analysis cua it qualifies meltzer s journal of health economics 16 1997 33 result that the cost per quality adjusted life year qaly for life saving medical interventions should include the future consumption of those who would otherwise not have survived by showing that its validity depends on how the qaly index has been established the paper also shows that contrary to a widely held notion allocation of a fixed health care budget through cua does not generally result in a second best efficient allocation another finding is that failure to specify carefully what respondents to standard gamble questions are supposed to assume about the financial consequences of ill health may result in a bias against providing care to older individuals

measurement of health state utilities for economic appraisal health status measurement for use in economic appraisal of health care programmes is reviewed in this paper with particular emphasis on utility measurement a framework for economic appraisal is presented displaying the various components that must be measured and showing how the three forms of analysis cost effectiveness analysis cost benefit analysis and cost utility analysis relate to the framework and to each other one of the components in the framework is health status it can be measured using ad hoc numeric scales willingness to pay receive or health state utilities the determination of health state utilities is reviewed covering the following issues alternative sources of utilities health state descriptions multi attribute utility approach determination of appropriate subjects utility aggregation and accuracy three measurement techniques for health state utilities are described in detail rating scale standard gamble and time trade off the use of these methods is described for both chronic and temporary health states and for both health states considered better than death and those considered worse than death

qalys versus hyes what s right and what s wrong a review of the controversy abstract the paper uses an axiomatic approach to the description of individual preferences for health status sequences to resolve the major issues at stake in the recent controversy over qalys versus hyes while the hye accounts for an individual s time preference for health qaly scores based on the time trade off method will generally differ from the number of hyes hyes do not represent preferences for health under risk unless the utility function for reference flows of health is linear collapsing the two step hye assessment procedure into a single step entails a loss of information as regards the utility of a health status sequence although the procedure does represent preferences for health it fails to supply a description in terms of hyes in the case of risk as a remedy a modified hye approach is proposed

standard gamble time trade off and rating scale experimental results on the ranking properties of qalys this paper compares the relative performance of quality adjusted life years qalys based on quality weights elicited by rating scale rs time trade off tto and standard gamble sg the standard against which relative performance is assessed is individual preference elicited by direct ranking the correlation between predicted and direct ranking is significantly higher for tto qalys than for rs qalys and sg qalys this holds both based on mean spearman rank correlation coefficients calculated per individual and based on two social choice rules the method of majority voting and the borda rule undiscounted tto qalys are more consistent with direct ranking than discounted tto qalys

valuing environmental health effects an economic perspective this paper provides an overview of some of the issues involved in comparing benefit cost analysis and cost effectiveness analysis based on quality adjusted life years as alternative approaches to assessing environmental policies that affect human health it concludes that i although qalys have the advantage of reflecting policy impacts on both health status and longevity in a single scalar measure they are not consistent with utility theory unless individuals preferences satisfy some restrictive conditions ii they do not capture other important aspects of the valuation of changes in mortality and morbidity iii cost effectiveness analysis based on qalys as a measure of effectiveness omits non health related effects of environmental policy and iv it leaves unanswered the important question of what level of environmental regulation is appropriate