Worker replacement and cost-benefit analysis of life-saving healthcare programs, a precautionary note

Philippe Tessier (), Hélène Sultan-Taïeb () and Thomas Barnay ()
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Philippe Tessier: EA 4275 - Biostatistique, Recherche Clinique et Mesures Subjectives en Santé - Université de Nantes - UFR des Sciences Pharmaceutiques et Biologiques - UN - Université de Nantes
Hélène Sultan-Taïeb: LEG - Laboratoire d'Economie et de Gestion - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique

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Abstract: The assumption according to which ill individuals can be replaced at work that underpins the 'friction cost method' (FCM) to value productivity costs has been primarily discussed within the framework of cost-utility analysis. This paper investigates the consequences of this assumption for cost-benefit analysis (CBA). It makes three contributions. First, it provides the first analytical account of the overall consequences of ill worker replacement on social welfare and it analyzes the associated compensation effects within a CBA framework. Second, it highlights a double counting problem that arises when ill worker replacement is assumed in the CBA of life-saving health care programs. To the best of our knowledge, no satisfactory solution to this problem has yet been provided in the literature. Third, this paper suggests and discusses two original ways to address this double counting issue. One consists in adjusting value of a statistical life estimations for the well-being provided by future incomes. Another possibility lies in the estimation of marginal rates of substitution between health and wealth so as to directly monetize the value of life over and above consumption. We show that both solutions raise unresolved questions that should be addressed in future research to enable appropriate use of the FCM in CBA.

Keywords: cost-benefit analysis; friction cost method (search for similar items in EconPapers)
Date: 2014
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Published in Health Economics, Policy and Law, 2014, ⟨10.1017/S1744133113000352⟩

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Journal Article: Worker replacement and cost-benefit analysis of life-saving health care programs, a precautionary note (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01297820

DOI: 10.1017/S1744133113000352

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