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October 2021

Life-cycle preferences over consumption and health: when is cost-effectiveness analysis equivalent to cost-benefit analysis?

Author(s): Quiggin, J.

Journal/Book: J Health Econ. 1999; 18: PO Box 211, 1000 AE Amsterdam, Netherlands. Elsevier Science Bv. 681-708.

Abstract: 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.

Note: Article Bleichrodt H, Erasmus Univ, IMTA, POB 1738, NL-3000 DR Rotterdam, NETHERLANDS

Keyword(s): economic evaluation; value of life; health; utility theory; willingness to pay; MULTIATTRIBUTE UTILITY; CHARACTERIZING QALYS; ANTICIPATED UTILITY; RISK; HYES; CHOICE

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