Economic Evaluation Under Ambiguity and Structural Uncertainties

Brendon P. Andrews

Journal of Benefit-Cost Analysis, 2024, vol. 15, issue 3, 456-476

Abstract: Healthcare technologies are often appraised under considerable ambiguity over the size of incremental benefits and costs, and thus how decision-makers combine unclear information to make recommendations is of considerable public interest. This paper provides a conceptual foundation for such decision-making under ambiguity, formalizing and differentiating the decision problems of a representative policy-maker reviewing the results from an economic evaluation. A primary result is that presenting information to regulators in an incremental cost-effectiveness ratio or cost-effectiveness analysis (CEA) format instead of a net monetary benefit or cost–benefit analysis (CBA) framework may induce errors in decision-making when there exists ambiguity in incremental benefits and decision-makers use well-known decision rules to combine information. Ambiguity in incremental costs or the value of the cost-effectiveness threshold does not distort decision-making under these rules. In reasonable contexts, I show that the CEA framing may result in the approval of fewer technologies relative to CBA framing. I interpret these results as predictions on how the presentation of information from economic evaluations to regulators may frame and distort recommendations. All the results extend to non-healthcare contexts.

Date: 2024
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