Economic Evaluation under Ambiguity and Structural Uncertainties

Brendon Andrews

No 2023-9, Working Papers from University of Alberta, Department of Economics

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 do not distort decision-making under these rules. In specific settings, 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.

Keywords: ambiguity; structural uncertainty; economic evaluation; cost-effectiveness; cost-benefit analysis; healthcare technology assessment; regulation; framing (search for similar items in EconPapers)
JEL-codes: D70 D81 H40 I18 O38 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-10-30, Revised 2024-12-31
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2023_009

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