title: Economic foundations of cost-effectiveness analysis.
abstract: To address controversies in the applications of cost-effectiveness analysis, we investigate the principles underlying the technique and discuss the implications for the evaluation of medical interventions. Using a standard von Neumann-Morgenstern utility framework, we show how a cost-effectiveness criterion can be derived to guide resource allocation decisions, and how it varies with age, gender, income level, and risk aversion. Although cost-effectiveness analysis can be a useful and powerful tool for resource allocation decisions, a uniform cost-effectiveness criterion that is applied to a heterogeneous population level is unlikely to yield Pareto-optimal resource allocations.
authors.affiliation: Veterans Affairs Palo Alto Health Care System, CA, USA. garber@stanford.edu
authors.forename: A M
authors.initials: AM
authors.lastname: Garber
authors.forename: C E
authors.initials: CE
authors.lastname: Phelps
mesh_terms: D003362:Cost-Benefit Analysis / Q000191:economics*; D017048:Health Care Costs / Q000639:trends*; D006291:Health Policy / Q000191:economics; D006302:Health Services Research / Q000191:economics / Q000379:methods*; D017059:Models, Econometric; D019057:Quality-Adjusted Life Years; D014481:United States