Health Sciences 3840B Lecture 5: Lec 5 Economic Evaluations
30 May 2018
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Professor
Nobody picked the price or quantity –determined by where supply and demand intersect, nobody intervening in the market and picking it, just determined by
market forces
Opportunity cost –we care about picking the program with the lowest cost because those resources could be used somewhere else then
Allocative efficiency –before in the context of individual utility, might want to focus on years of life gained for example
Social cost –all of the cost to society
Specify who’s viewpoint we’re taking to determine the cost
Similar to the idea of cost to producer vs. cost to society
3. b) Be able to quantify how much pollution
c) Some things are easy but other things such as pollution are more difficult, or the cost of a patient’s time, cost to the p atient’s family of having to care from the
home. It might be hours but how much is that worth? What price do we put on that? Not one obvious way, subjective
For each alternative go through all of these steps
Then you need a method to compare
We’re going to look at 3 ways to compare (“Criteria”)
Is a doctor’s time the same as the patient’s time and the administrator’s time?
It’s subjective, maybe we shouldn’t value people’s time differently because of their income
Stay at home parent –this is subjective but important to think about –are you going to put no value on the time of somebody just because they don’t have a
market wage?
QALY is not going to be an output of education –QALY and improvements to education aren’t comparable
Doesn’t mean we don’t need to compare them! Need to put those into common terms
Think about additional benefit to society –what is the benefit to people being more educated? Increases in economy, etc.
Depends on the viewpoint that we take
MOHLTC –include costs to the health care sector but maybe not costs to patient’s family
Limited because you can’t compare with anything other than chicken pox, can’t compare with another disease
Compare the costs in dollars with the benefit also in dollars
The two lines are the same thing –if A has a larger benefit than B it might also have a larger cost which is why you need both parts of the equation
Second line is just another way to think about it
P at which they’re indifferent = utility of having chronic lung disease
We want to know the utility of A –living with chronic lung disease
Utility of death = 0
Utility of full health = 1
^these are arbitrary numbers, just need to make sure that there is a distinction
Underlying assumption is that we give an individual 2 options, they can tell us which one they prefer
Two choices, at each endpoint we know somewhere in between they’re going to be indifferent
Ask the person
At p = 0, U(A) > U(B), which is immediate death.
At p = 1, U(A) < U(B), which is having full health with probability 1
We want to find at what point are they going to be indifferent?
Keep asking the person until we find out that its between 0.75 and 0.99 for example. 0.75 < p < 0.99, could continue asking until you narrow it down
Suppose p = 0.85
U(A) = 0.85 x 1 + 0.15 x 0 = 0.85
If we just took a sample of wealthy people’s WTP, if it’s the same but just +$300 then the comparison is the same
A problem if the services that wealthy people are going to use are diff than the services not-wealthy people are going to use
If you can’t compare the options you can’t construct a utility function, even if we do get answers from people
Sometimes people will answer questions even if they have incomplete answers, be careful when taking these answers to represent utility or well-being
There is no distinction between who gets the QALYs –don’t distinguish who gets those
But can’t distinguish between giving 1 person 2 more years, and 2 people 1 more year
When you make the comparison it will be 25 vs 25
Distributional weights: for example, if they all go to one person you weight them lower?
False –an economic evaluation compares alternatives based on opportunity cost. There are also other types of costs and consequences such as QALYs or natural
units the cost/consequence comes in. ** Compares based on costs and consequences and we have seen non-monetary costs and consequences.
False –it compares policies that are created, market outcomes occur on their own. **We use economic evaluation because given market failure, policy makers
need a way to choose from alternatives.
False –a broader objective leads to a larger set of alternatives but not necessarily a better policy. ** A broader objective is a different objective, cannot compare
Lec 5 Economic Evaluations
May 6, 2018
3:41 PM
Health Economics Page 1
Document Summary
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