Willingness to pay as a measure of health benefits

Abstract

In this paper, we discuss the use of cost-benefit analysis (CBA) for evaluating new healthcare interventions, present the theoretical basis for the use of willingness to pay as a method for valuing benefits in a CBA and describe how to obtain willingness-to-pay (WTP) measures of health benefits and how to use these values in a CBA. We review selected economic studies on consumer demand and consumer surplus and studies presenting WTP estimates for healthcare interventions. The theoretical foundations of willingness to pay as a measure of commodity value are rooted in consumer demand theory. The area under the fixed income consumer demand curve represents the consumer's maximum willingness to pay for the commodity. We identify 3 types of potential benefits from a new healthcare intervention, namely patient benefits, option value and altruistic value, and suggest WTP questions for valuing different combinations of these benefits. We demonstrate how responses to these questions can be adjusted for income effects and incorporated into economic evaluations. We suggest that the lack of popularity of CBAs in the health area is related to the perceived difficulty in valuing health benefits as well as concern over how CBA incorporates the distribution of income. We show that health benefits can be valued using simple survey techniques and that these values can be adjusted to any desired income distribution