Theory and Methods of Economic Evaluation of Health Care

By Born, Patricia | Journal of Risk and Insurance, March 1998 | Go to article overview

Theory and Methods of Economic Evaluation of Health Care


Born, Patricia, Journal of Risk and Insurance


Theory and Methods of Economic Evaluation of Health Care, by Magnus Johannesson (Kluwer Academic Publishers, 1996).

In this book, Magnus Johannesson is motivated by the unclear theoretical foundations for traditional cost-benefit and cost-utility analyses to provide a framework for economic evaluation in the health care field. Although a majority of the text deals with specific problems in conducting cost-benefit analysis, the introductory chapters provide an excellent overview of relevant economic principles. The development of specific economic concepts, such as willingness to pay (WTP) and the social welfare function, is important for the subsequent chapters that address the application of these concepts to real world problems in health care markets.

The text contains twelve chapters that may be organized into three main sections: theories and concepts (chapters 1 through 4), approaches (5 through 10), and policy implications ( 11 and 12). The chapters are self-contained with regard to concepts and examples, but, because many of the concepts are further developed in later chapters, I recommend reading the chapters in order. For example, the model developed in chapter 3 begins with WTP reflected only in changes in health. The WTP concept is carried into chapter 4 with consideration of consumption of nonhealth goods and leisure.

The author discusses many areas of economic evaluation, including wage-risk studies, consumer valuations of safety, contingent valuation (CV) of health changes, cost-benefit analysis, discounting of costs and benefits, cost-effectiveness analysis, cost-utility analysis, and measurement of quality-adjusted life years. After laying the theoretical groundwork in these areas, Johannesson addresses the practical problems that one may encounter in applying the theories. In particular, he elaborates on many of the problems encountered in obtaining appropriate data for analysis. In the discussion of wage-risk studies, for example, he notes the problem of obtaining after-tax wage information for individuals. His discussion of the CV method highlights several sources of potential bias, including interviewer bias, implied value cues, and range bias.

Johannesson's style is clear and concise throughout the text. The book contains 42 figures, including market supply and demand curves and a variety of social welfare functions. …

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