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J Health Econ. 1997 Feb;16(1):1-31.

Economic foundations of cost-effectiveness analysis.

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Veterans Affairs Palo Alto Health Care System, CA, USA.


To address controversies in the applications of cost-effectiveness analysis, we investigate the principles underlying the technique and discuss the implications for the evaluation of medical interventions. Using a standard von Neumann-Morgenstern utility framework, we show how a cost-effectiveness criterion can be derived to guide resource allocation decisions, and how it varies with age, gender, income level, and risk aversion. Although cost-effectiveness analysis can be a useful and powerful tool for resource allocation decisions, a uniform cost-effectiveness criterion that is applied to a heterogeneous population level is unlikely to yield Pareto-optimal resource allocations.

[Indexed for MEDLINE]

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