Portfolio theory and the alternative decision rule of cost-effectiveness analysis: theoretical and practical considerations

Pedram Sendi, Maiwenn J. Al, Amiram Gafni and Stephen Birch

Social Science & Medicine, 2004, vol. 58, issue 10, 1853-1855

Abstract: Bridges and Terris (Soc. Sci. Med. (2004)) critique our paper on the alternative decision rule of economic evaluation in the presence of uncertainty and constrained resources within the context of a portfolio of health care programs (Sendi et al. Soc. Sci. Med. 57 (2003) 2207). They argue that by not adopting a formal portfolio theory approach we overlook the optimal solution. We show that these arguments stem from a fundamental misunderstanding of the alternative decision rule of economic evaluation. In particular, the portfolio theory approach advocated by Bridges and Terris is based on the same theoretical assumptions that the alternative decision rule set out to relax. Moreover, Bridges and Terris acknowledge that the proposed portfolio theory approach may not identify the optimal solution to resource allocation problems. Hence, it provides neither theoretical nor practical improvements to the proposed alternative decision rule.

Keywords: Cost-effectiveness; analysis; Uncertainty; Portfolio; theory (search for similar items in EconPapers)
Date: 2004
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