life cycle preferences over consumption and health a comment on bleichrodt and quiggin abstract in a recent issue of the journal of health economics bleichrodt and quiggin 1999 developed a model of life cycle preferences over consumption and health to analyze qaly based decision making this analysis is crtically appraised concerning issues of qaly maximization on an individual and on an aggregate level as well as of the role of death in qaly models it is concluded that a more general approach might be useful for the analysis of qalys and life cycle preferences over consumption and health

equity weights in the allocation of health care the rank dependent qaly model this paper introduces the rank dependent quality adjusted life years qaly model a new method to aggregate qalys in economic evaluations of health care the rank dependent qaly model permits the formalization of influential concepts of equity in the allocation of health care such as the fair innings approach and it includes as special cases many of the social welfare functions that have been proposed in the literature an important advantage of the rank dependent qaly model is that it offers a straightforward procedure to estimate equity weights for qalys we characterize the rank dependent qaly model and argue that its central condition has normative appeal

social indicators and comparisons of living standards abstract construction of an international index of standards of living incorporating social indicators and economic output typically involves scaling and weighting procedures that lack welfare economic foundations revealed preference axioms can be used to make quality of life comparisons if we can estimate the representative household s production technology for the social indicators this method is applied to comparisons of gross domestic product gdp and life expectancy for 58 countries neither gdp rankings nor the rankings of the human development index hdi are consistent with the partial ordering of revealed preference a method of constructing a utility consistent index incorporating both consumption and life expectancy is suggested

the reasonableness of non constant discounting abstract the typical method for valuing the future goods and harms of a public policy alternative is by means of a constant annual discount rate this paper examines the reasonableness for public policy analysis of non constant discounting methods that unlike constant discounting can accord considerable importance to outcomes in the distant future we examine temporal consistency and economic efficiency as reasons for the use of constant discounting and we argue that these reasons do not apply for a public policy choice whose effects are long range and irreversible

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

willingness to pay and the distribution of risk and wealth willingness to pay wtp most economists believe is an appropriate benefits metric for government expenditure and regulatory policies that reduce risks to human life it depends however on the distribution of risk and wealth currently society s expenditures overemphasize concentrated risks say after the fact treatment as opposed to prevention a dead anyway effect complements excess attention to intense interests in explaining this our normative criterion for spending on risk reduction is what a rational albeit uninsured individual confronting lotteries on future risks to life and wealth would choose for himself this requires correcting wtp to eliminate the dead anyway effect but continues to reflect that wealth enhances the utility of living

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

human development at risk economic growth with pollution induced health shocks risks to human health stemming from polluted air water and soil are substantial especially in the rapidly growing economies the present paper develops a theoretical framework to study an endogenously growing economy which is subject to pollution induced health shocks with the health status being an argument of the welfare function pollution arising as a negative externality from production adversely and randomly affects the regeneration ability of a human body leading to a decline in the overall health status of the population we include two types of uncertainty surrounding the health status continuous small scale fluctuations driven by the wiener process and large scale shocks or epidemics driven by the poisson process we derive closed form analytical solutions for the optimal abatement policy and the growth rate of consumption devoting a constant fraction of output to emissions abatement delivers the first best allocation this fraction is an increasing function of total factor productivity polluting intensity of production and damage intensity of both continuous and jump type shocks a higher frequency of jumps also calls for more vigorous abatement policies by contrast the optimal growth rate of the economy is decreasing in the frequency and intensity of shocks and in the polluting intensity of output the efficiency of abatement technology has in general an ambiguous bearing on both the growth rate and on the abatement share due to the opposing forces of the direct and indirect effects

a welfare theoretic model consistent with the practice of cost effectiveness analysis and its implications abstract i look at three debates in the health economics literature in the context of cost effectiveness analysis cea 1 inclusion of future costs 2 discounting and 3 consistency with a welfare economic perspective these debates thus far have been studied in isolation leading to confusion and lingering questions i look at these three debates holistically and present a welfare theoretic model that is consistent with the practice of cea and can help inform all of these three debates it shows rationales for the recommendations of the second panel and clarifies some nuanced implications for the practice of cea when taking a societal perspective in the context of distributional cea and multi sectorial budgets

discounting of life saving and other nonmonetary effects cost effectiveness analysts generally assume that preferences over time are such that streams of monetary and nonmonetary program effects can be reduced to one discounted sum of monetary costs and another of effects it is known that if the nonmonetary effects can be cashed out in a way that does not vary with time then the rates of discount for monetary and nonmonetary effects have to be equal this paper presents a more compelling argument for the equality of those rates when hard to monetize benefits such as life saving are involved it shows that if the ability to produce the nonmonetary effect does not diminish too quickly over time failure to discount benefits implies that programs are always improved by delay in general discounting benefits and costs at different rates can lead to peculiar results

the insurance value of medical innovation abstract economists think of medical innovation as a valuable but risky good producing health benefits but increasing financial risk for consumers and healthcare payers this perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease we present an alternative framework that accounts for all these sources of value and links them to the value of healthcare insurance we show that any innovation worth buying reduces overall risk and generates positive insurance value on its own we conduct a stylized numerical exercise to assess the potential empirical significance of our insights our calculations suggest that conventional methods meaningfully understate the value of historical health gains and disproportionately undervalue treatments for the most severe illnesses where physical risk to consumers is the costliest these calculations also suggest that the value of physical insurance from new technologies may exceed the financial spending risk that they pose

optimal enlistment age a cost benefit analysis and some simulations abstract enlistment at the earliest viable age maximizes the country s wartime army size and thereby the country s attack deterrence capacity injuries and death generate a loss of quantity and quality of life that reduces the benefit from early age enlistment the benefit from any age of recruitment is also affected by the rise and decline of the individual s military performance and civilian productivity and by the changes in the individual s adjustment costs over his lifecycle the simulations of an optimization model incorporating these cost and benefit elements suggest that if the intensity of the rise and decline of the individual s military performance is sufficiently larger than the intensity of the rise and decline of his civilian productivity there exists an interior optimal enlistment age that is greater than the commonly practiced 18 in such a case most of the simulation results are closely scattered around 21 despite large parameter changes

trying to estimate a monetary value for the qaly in this paper we study the feasibility of estimating a monetary value for a qaly mvq using two different surveys of the spanish population total n 892 we consider whether willingness to pay wtp is approximately proportional to the health gains measured in qalys we also explore whether subjects responses are prone to any significant biases we find that the estimated mvq varies inversely with the magnitude of health gain we also find two other ir regularities the existence of ordering effects and insensitivity of wtp to the duration of the period of payment taken together these effects result in large variations in estimates of the mvq if we are ever to obtain consistent and stable estimates we should try to understand better the sources of variability found in the course of this study

factor endowments and welfare levels in an asymmetric tax competition game abstract this paper addresses capital tax competition among an arbitrary number of countries countries are asymmetric not only in their population endowment but also in their capital endowment per inhabitant national governments tax capital and labor in order to finance a fixed public budget asymmetric capital taxation arises at equilibrium leading to a distortion on the international capital market we fully characterize how equilibrium taxes and welfare levels depend upon countries population and capital endowments we compare it to the autarky situation and show that fiscal competition erodes some but not all of the gains from capital markets liberalization

multiattribute utility theory without expected utility foundations methods for determining the form of utilities are needed for the implementation of utility theory in specific decisions an important step forward was achieved when utility theorists characterized useful parametric families of utilities and simplifying decompositions of multiattribute utilities the standard development of these results is based on expected utility theory which is now known to be descriptively invalid the empirical violations of expected utility impair the credibility of utility assessments this paper shows however that parametric and multiattribute utility results are robust against the major violations of expected utility they retain their validity under nonexpected utility theories that have been developed to account for actual choice behavior to be precise characterizations of parametric and multiattribute representations are extended to rank dependent utility state dependent utility choquet expected utility and prospect theory

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

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

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

do investors value a firm s commitment to social activities previous empirical research has found mixed results for the impact of corporate social responsibility csr investments on corporate financial performance cfp this paper contributes to the literature by exploring in a two stage investor decision making model the relationship between a firm s innovation effort csr and financial performance we simultaneously examine the impact of csr on both accounting based financial health and market based tobin s q financial performance measures from a sample of top corporate citizens we find that 1 a firm s social responsibility commitment csr contributes to its financial performance 2 after controlling for investment in innovation activities csr continues to have a positive impact on a firm s financial performance 3 the customer dimension of csr has a positive effect on both cfp measures whereas the employee dimension indicates a significant impact only on financial heath and 4 the community relation dimension of csr only affects the market based cfp measure of firms with high innovation intensity

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

on what basis should health be discounted the discount rate to be applied in health care programmes should be based on the time preference rate for health and this same rate should be applied to costs as well due to the limited tradeability of health when eliciting its time preference rate the intertemporal choices must be framed in such a way as to resemble as closely as possible those facing health planners and decision makers

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

economic evaluation of health care programmes is cea better than cba it has been noted earlier that during the same period that the contingent valuation cv method evolved and became the most commonly used method of valuing environmental projects the development in health economics was instead been towards cost effectiveness analysis cea recently there has been a growing interest in the use of cea where qalys quality adjusted life years are used as a measure of effectiveness as the method of evaluation for environmental projects the purpose of this paper is to answer the question is cea a superior method to cba both theoretically and empirically to provide information to decision makers for use in decisions on resource allocation in health the paper deals with the following topics the underlying theoretical foundation for cea is cea free of income distribution considerations is qaly a superior measure to wtp the usefulness of incremental ce ratio icer to determine resource allocation the paper concludes that there is neither theoretical nor practical support for the claim about the superiority of cea

the utility of health and wealth abstract tradeoffs between health and wealth are among the most important decisions individuals make and are central to social and economic policy yet only a few studies have investigated the utility of health and wealth empirically this paper investigates this utility function both theoretically and empirically we conduct detailed personal interviews with 180 cancer patients and also obtain questionnaires from 132 diabetes patients we find strong support for the utility function u h w h log w where h denotes health and w denotes wealth

the normative economics of health care finance and provision whereas in many countries the crisis in medical care has been seen in terms of excess spending on health services in the uk it has been seen at least by most of those who manage and work in the nhs as a crisis of underfunding this has come about as the result of the government s successful attempts to restrain the rate of growth of real spending on the nhs which in turn reflects the government s belief that its principal effective weapon against what it perceives to be inefficiency in the nhs is to challenge management itself reformed and to some extent liberated by systematic financial squeezes the same concern has given rise to a host of proposals for reform of the nhs most of which involve a much greater role for private insurance private finance of other kinds such as out of pocket payments and private provision of health care itself

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 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

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

biases from omitted risk effects in standard gamble utilities utilities elicited under the probability equivalence version of the standard gamble procedure systematically exaggerate the utility increments of expensive health interventions that bring the recipient towards full health switching to the alternative certainty equivalence version would introduce the reverse bias the biases arise from anticipated pre and post decision risk effects that expected utility theory omits to include these risk effects partition the future by changes in knowledge into 1 pre choice periods 2 the pre outcome future before the chosen act s outcome becomes known and 3 the more distant post outcome future when that outcome will have become known

your money or your life a prescriptive model for health safety and consumption decisions in this paper we develop a conceptual framework and model for valuing risks to an individual s health and life and to support decision making about investments in health quality of life and safety our treatment of health risks in the model builds on the popular quality adjusted life year qaly framework that balances health quality and length of life issues we extend this framework to consider financial concerns as well as health quality and length of life our model considers uncertainty in income and health and incorporates the decision maker s ability to adjust consumption over time in response to changes in expectations about health and income we use this model to study the optimal tradeoffs between financial gains or losses and improvements or reductions in health or longevity and apply it in two example medical decision problems

capabilities as menus a non welfarist basis for qaly evaluation quality adjusted life years qalys are the most widely used measure of health in economic evaluations of health care within a welfarist framework qalys are consistent with people s preferences under stringent assumptions several authors have argued that qalys are a valid measure of health within an extra welfarist framework this paper studies the applicability of qalys within the best known extra welfarist framework sen s capability approach we propose a procedure to value capability sets and provide a foundation for qalys within sen s capability approach we show that under appropriate conditions the ranking of capabilities can be represented locally by a qaly measure and that a willingness to pay for qalys can be defined the validity of qalys as a general measure of health requires the same stringent conditions as in a welfarist framework

is there a meaningful definition of the value of a statistical life a definition of the value of a statistical life is derived this definition has a meaningful interpretation in terms of the monetary value of expected present value utility if consumption is age independent in all other cases empirical estimates of the value of a statistical life are biased estimators of the monetary counterpart to expected present value utility