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Cost‐effectiveness analysis and health care resource allocation: decision rules under variable returns to scale
Author(s) -
Elbasha Elamin H.,
Messonnier Mark L.
Publication year - 2004
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.793
Subject(s) - returns to scale , scale (ratio) , variable (mathematics) , econometrics , resource allocation , economics , constant (computer programming) , decision rule , actuarial science , population , operations research , computer science , microeconomics , mathematics , medicine , production (economics) , mathematical analysis , physics , programming language , market economy , environmental health , quantum mechanics
We argue that health programs are administered in settings that often violate the frequently stated assumption of constant returns to scale in the provision of health services. Three types of returns to scale are identified from the general economic literature: returns to scale with respect to population, effectiveness, and quality. We show that decision rules based on incremental cost‐effectiveness ratios or cost–benefit tests are not optimal if returns to scale are not constant. We derive the optimal decision rules under variable returns to scale using optimization techniques, and employ several examples to illustrate the concepts and methods. Published in 2003 by John Wiley & Sons, Ltd.