TY  - JOUR
AU  - Garber,Alan M.
AU  - Phelps,Charles E.
TI  - Economic Foundations of Cost Effective Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4164
PY  - 1992
Y2  - September 1992
UR  - http://www.nber.org/papers/w4164
L1  - http://www.nber.org/papers/w4164.pdf
N1  - Author contact info:
Alan M. Garber
Provost
Harvard University
Massachusetts Hall
Cambridge, MA 02138
Tel: 617/496-5100
Fax: 617/495-8550
E-Mail: alan_garber@harvard.edu

Charles E. Phelps
Center for Advanced Study in the Behavioral Scienc
75 Alta Road
Stanford, CA 94305
Tel: (650)321-2052   Ext. 231
E-Mail: charles.phelps@rochester.edu
AB  - In order to address several controversies in the application of cost-effectiveness analysis, we investigate the principles underlying the technique and discuss the implications for the evaluation of medical interventions. Using a standard von Neumann-Morgenstern utility framework, we show how a cost-effectiveness criterion can be derived to guide resource allocation decisions. We investigate its relation to age, gender, income level, and risk aversion. Cost-effectiveness analysis can be a useful and powerful tool for resource allocation decisions, but in the presence of heterogeneous preferences and personal characteristics, a cost-effectiveness criterion that is applied at the population level is unlikely to yield pareto-optimal resource allocations.
ER  -