Axiomatic Foundations of Cost Effectiveness Analysis

David Canning

PGDA Working Papers from Program on the Global Demography of Aging

Abstract: Cost-effectiveness analysis, which ranks projects by quality adjusted life years gained per dollar spent, is widely used in the evaluation of health interventions. We show that cost effectiveness analysis can be derived from two axioms: society prefers Pareto improvements and society values discounted life years, lived in perfect health, equally for each person. These axioms generate a unique social preference ordering, allowing us to find the cost effectiveness threshold to which health projects should be funded, and to extend cost effectiveness analysis to give a consistent method of project evaluation across all sectors of the economy.

Keywords: Cost-benefit; cost-utility; social choice; welfare economics (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-ppm
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Journal Article: AXIOMATIC FOUNDATIONS FOR COST‐EFFECTIVENESS ANALYSIS (2013)
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