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The measurement of individual utility and social welfare

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It has been suggested by a number of economists that decisions about how to allocate scarce health care resources should be informed by the cost per quality-adjusted life-years (QALYs) of the different alternatives. One of the criticisms of the QALY approach is that it is based on the measurement of individual utility; yet the values elicited are used to inform social choice. In this respect, it is argued that the QALY approach fails to take account of distributional issues that are known to be important in the context of health care. This paper addresses this issue and presents an approach grounded in microeconomic theory that is flexible enough to deal with a wide range of efficiency-equity trade-offs, while making the nature of the trade-off transparent. In addition, it is an approach that is relatively simple to investigate empirically, and the results of a preliminary study are presented as illustration of this.

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