Cost-Benefit Analysis

Abstract

In this chapter we focus on policy implications resulting from our analysis. For this reason a cost-benefit analysis for each of the three AD programs is conducted to identify whether a program’s benefits exceed its cost. A posi-tive net social benefit indicates that a program is worthwhile. Benefits can be measured with two methods: the cost-of-illness (COI) and the willingness-to-pay (WTP) approach. The COI method approach tries to measure the social costs associated to a particular disease. Costs include direct costs (e.g., medical services) as well as indirect costs (e.g., loss of productivity, premature death). If a health program yields a reduction in illness, costs of medical expenditures and forgone earnings decrease. These cost savings are treated as the benefits of the health program. However, the COI approach does not measure intangible costs (e.g., pain and suffering), and therefore estimated benefits are a lower bound of a health program’s benefits. Contrary to the COI approach, the WTP method measures the value of a health program on how much individuals are willing to pay for it. The advantages of WTP are that it contains all utility components and is based on individuals’ preferences. We apply both methods to measure the benefits of the programs ’care’ and ’diagnosis’ in spite of the substantial disadvantages of the COI approach.