COST‐BENEFIT ANALYSIS AND HELATH SERVICE POLICY 1
| Date | 01 February 1963 |
| Published date | 01 February 1963 |
| DOI | http://doi.org/10.1111/j.1467-9485.1963.tb00919.x |
| Author | Jack Wiseman |
COST-BENEFIT ANALYSIS
AND
HEALTH SERVICE
POLICY’
JACK
WISEMAN
I.
INTRODUCTION
THERE
is
growing interest among economists in the development of
a
theory of human capital, which would complement the theory of
physical capital, and enable capital theory
as
a whole to make
a more satisfactory contribution than at present to
our
understanding
of such questions as the nature and problems of economic growth.
As part of this development, attempts have been and are being made
to estimate the effects on community output of the provision of such
services as health and education, with the purpose
of
discovering the
rate of return to investment of particular kinds in human beings.
The studies use the general techniques of cost-benefit analysis. A
prime purpose of such analysis
is
to provide criteria for the identifica-
tion of
‘
preferred
’
public policies.
In
doing
so,
the analysis should
provide useful (though not necessarily complete) information as to
the
‘
efficient
’
size of the general programmes under review (e.g. the
‘
right
’
amount of expenditures on the British National Health
Service), and also give guidance about the associated problems of
optimal allocation of medical resources between different possible
uses and of ensuing ‘efficient’ utilisation of those resources in the
use to which allotted. The potential importance of such studies in
the field of health needs no emphasis: these are precisely the prob-
lems that have plagued
(infer
alia)
those responsible for National
Health Service expenditures since the inception of the Service.
In this paper,
I
shall provide
a
brief description of these studies
of investment in health, as
a
basis for assessing their (actual
or
potential) contribution to the resolution of the problems described.
This is
a
relatively new field of study, and
I
shall interest myself in
its methodology rather than in specific results
so
far obtained.
For
the same reason, the fact that
I
shall suggest deficiencies in the
approach now being developed should not be taken to imply criticism
of the writers to whom
I
refer. The two related questions that
concern them, of the characteristics
of
investment in people and
of
1
This article
was
written
during
a year spent at the University of Cali-
fornia, Berkeley.
I
am grateful
to
my colleagues
in
the Department
of
Economics there for much helpful comment
and
criticism.
128
COST-BENEFIT
ANALYSIS
AND
HEALTH
SERVICE
POLICY
129
efficiency in the activities
of
government, have long been given inade-
quate attention by economists. The studies thus break new ground,
and the fact that they can be criticised
is
less important than the
fact that they should be made.2
11.
INVESTMENT
IN
HEALTH
In
this section,
I
shall provide an (inevitably inadequate) summary
of the purposes, procedures, and problems of studies
of
investment
in health, in order subsequently to consider the contribution that
these studies might make to better decision-taking about the alloca-
tion of community resources
to
the provision of health, and how that
contribution might be enhanced.
The broadest approaches to the study of investment in health
attempt in some fashion to measure the value of the
‘
stock
’
of health
capital invested in people: ‘In its simplest form the economic
resources (labor and commodities) devoted to health care represent
in some part an investment in health. In some part, that is, the health
outlays improve the labor product and continue to yield
a
return
over a period
of
years. The labor product created by this care and
savings in health expenditure in the future,
if
any, as a consequence
of reduction in disease is the yield.’3 The stock of
‘
health capital’
can thus be computed by measuring the cost (actual purchase price,
replacement cost,
or
cost at constant prices)
of
acquisition of environ-
mental and curative health services in the years they were acquired,
2
It
is of course also true that the studies considered are
not
identical in
approach. But
I
do not think my generalisations about them are seriously
misleading.
The
Journal
of
Political Economy,
Vol.
LXX, No.
5
Part
2
(Oct. 62), deals
entirely with investment in human beings and in doing
so
provides a useful
survey
of
the field and the literature.
In
that Journal. Selma
J.
Mushkin, ‘Health
as an Investment’ deals with our immediate topic. Relevant recent studies
(mostly American) are: B. A. Weisbrod:
Economics
of
Public Health;
R.
Fein
:
Economics
of
Mental Zl1ne.w.
Joint Commission on Mental Illness and
Health, Monograph Series No.
2.
New York, Basic Books 1958;
I.
S.
Blumen-
thal
:
Research and the Ulcer Prohlerns.
Rand Corporation Report
R-336-RC,
1959;
H.
Laitin
:
The Economics
of
Cancer (unpublished doctoral dissertation,
Harvard University, 1956); National Health Education Committee
:
Facts
on
the
Major Killing and Crippling Diseases
in
the United States To-day
(New
York,
1959).
Other studies
of
interest are B. Abel-Smith and R. M. Titmuss.
The
Cost
of
the Naiional Health Service,
D.
J.
Reynolds. ‘The
Cost
of Road Accidents
’,
Journal
of
the Royal Statistical Society.
CXIX, Part
4,
1956. M. Beesley and
D.
J.
Reynolds.
The
London-Birmingham Motorway and Econornics,
Road
Research Technical Paper No. 46, 1960.
The general study now under way in U.S.A. and discussed in the text is
described in Mushkin,
op.
cit.; preliminary findings are published in
Progress
in
Health Services,
Vol.
X. March 1961 (Health Information Foundation
Newsletter). Apart from its intrinsic interest, the Mushkin article gives
numerous references to earlier material and associated topics.
Mushkin, op. cit.,
p.
136.
9
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