Cost-effectiveness analysis, welfare economics, and the societal perspective: a reply

A critical question in cost-effectiveness analysis (CEA) is what costs should be included. In an earlier paper in this journal, I argued that the same principle (internal consistency) that has been applied to the discussion about future non-medical costs should also be applied to the case when survival is not affected. Internal consistency in this case implies that a cost should only be included if its corresponding utility is also included. As Quality-Adjusted Life-Years can rarely be considered to be consistent with a broad definition of utility, I built a case for recommending to not including the costs for changes in consumption and absence from work (whereas changes in the productivity at work may still be included) when applying a welfare theoretic foundation. As one of several parts of building this case, and to further highlight the elements of importance, I constructed a simple welfare theoretic model. Unfortunately, this model did not take the envelope theorem into account (which was correctly pointed out by Prof. Friedrich Breyer). However, most of the arguments still hold and the policy implications are actually even confirmed in the analysis by Prof. Friedrich Breyer. Building on these results, a related and equally interesting question is what the implications are on the so-called societal perspective. It seems as if a societal perspective in CEA may not be consistent with a welfare theoretic foundation. However, even if such a foundation is not seen as important, it may still be of interest—for reasons of internal consistency—to take a societal perspective on both costs and benefits.