Discounting for Health Effects in Cost Benefit and Cost Effectiveness Analysis

  • Gravelle H
  • Smith D
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Abstract

When health effects can be valued in monetary terms, as in CBA, they should be discounted at the same rate as costs. If health effects are measured in quantities (eg QALYs), as in CEA, and the value of health effects is increasing over time, then discounting the volume of health effects at a lower rate than costs is a valid method of taking account of the increase in the future value of health effects. We present individualistic and welfare models to argue that the rate of growth of the value of health effects gv is positive. The welfare model suggests that gv is a weighted average of the rate of growth of the value of the direct effect of health on utility, the growth rate of income, and the growth rate of income times the elasticity of the marginal utility of income. We also show that the Keeler-Cretin paradox, often used as an argument against discounting health effects at a lower rate than costs, has no relevance for the choice of discount rate in CEA.

Author-supplied keywords

  • discounting
  • economic evaluation
  • value of health

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Authors

  • Hugh Gravelle

  • Dave Smith

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