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The relationship between cost-effectiveness analysis and cost-benefit analysis

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  • Johannesson, Magnus

Abstract

This paper examines the relationship between cost-effectiveness analysis and cost-benefit analysis. Provided that a cost-effectiveness analysis includes all the relevant societal costs, it is shown that a cost-effectiveness analysis can be interpreted as a cost-benefit analysis where the willingness to pay per effectiveness unit is assumed to be constant and the same for everyone. To relax this assumption the willingness to pay per effectiveness unit can be allowed to vary depending on for instance the size of the health effects and the target population. It is argued that cost-effectiveness analysis is best viewed as a subset of cost-benefit analysis, where the aim of the analysis is to estimate the cost function of producing health effects. It is also concluded that to interpret and use cost-effectiveness analysis as a tool to maximize the health effects for one specified real-world budget, will be inconsistent with a societal perspective and is likely to lead to major problems of suboptimization.

Suggested Citation

  • Johannesson, Magnus, 1995. "The relationship between cost-effectiveness analysis and cost-benefit analysis," Social Science & Medicine, Elsevier, vol. 41(4), pages 483-489, August.
    • Handle: RePEc:eee:socmed:v:41:y:1995:i:4:p:483-489
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