WPS 97-01: LIMITATIONS OF COST-EFFECTIVENESS ANALYSIS

Posted: Monday, April 1st 1996 at 3:44 PM

Title:

Limitations of Cost-Effectiveness Analysis: Defective Data and Significant Digits

Authors:

William Hildred
Professor of Economics
CBA • NAU

James Pinto
Professor of Economics and Statistics
CBA • NAU


Abstract

Some applications of Cost-Effectiveness Analysis in the process of allocating resources for health care use hospital "charges" as cost data. These are not appropriate for decision making within the framework of standard economic analysis. Also disputable is the accuracy of some calculations in these analyses, caused by failure to consider the limitations imposed by significant digits in the data. A Cost-Effectiveness Analysis of a proposed program for mass vaccinations for chicken pox provides a case study of the general problem, with additional specific evaluation of the problems encountered in using aggregated "charge" data from a statewide data base, compounding the initial error of using "charges" to depict economic costs. Institutionalist economic theory, based on the insights of John Dewey, is the basis for the evaluation. The article concludes that Cost-Effectiveness Analysis is misused in the reviewed article, and that the misuse is economically and politically detrimental.

PDF of working paper HERE.



Categories: working paper series 2002-1997 william hildred james pinto limitations of cost-effectiveness analysis: defective data and significant digits working paper series 2002-1997