Flashcards
Cost-Benefit Analysis Objectives
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- 1Define Cost-Benefit Analysis1. An analysis in wh/ both the costs and benefits are measured in dollars.
2. useful in determining which program or intervention has the greatest benefit.
3. it is a useful method for comparing multiple programs with varying outcomes. - 2Describe Cost-Benefit Analysis1. It values indirect benefits (productivity) using the HC approach and intangible benefits using the WTP approach
- 3When do you use Cost-Benefit Analysis?1. Welfare economics
2. used to help make decisions regarding public policy by incorporating individual preferences and values to improve social welfare while balancing the effective use of resources.
3. setting environmental policy.
4. public goods such as wildlife, air quality, public parks, and health care. - 4Examples of when Cost-Benefit Analysis is used in history include....?1. to assess the costs and benefits of a vaccination program for children
- 5When was Cost-Benefit Analysis first used?The first use of CBA - 1961, Weisbrod assessed the costs and benefits of a vaccination program for children in which the benefits of the program were monetized by using wages to
value lost productivity and reduced survival - 6Summarized advantages of CBA (i)Many different outcomes can be compared as long as the outcomes measures are valued in monetary units
- 7Summarized advantages of CBA (ii)CBA ratios are expressed as benefit-to-cost ratios, where the higher the number, the more cost-beneficial — can be ranked, and programs with similar, as well as dissimilar, outcomes can be compared
- 8Summarized advantages of CBA (iii)The decision maker can determine which programs’ costs will exceed the benefits and vice versa - if the goal is to maximize the investment, the program with the highest benefit-to-cost ratio would be chosen
- 9Summarized advantages of CBA (iv)Can be used to answer the following questions: Do the benefits of a program or intervention outweigh the costs? Which program will provide the greatest benefit?
- 10Summarized disadvantages of CBA (i)Placing economic values on medical outcomes is not an easy task and there is no universal agreement on one standard method for accomplishing this
- 11Summarized disadvantages of CBA (ii)CBA uses methods to value morbidity or mortality lost from a human life — controversy arises regarding the methodology used to place a dollar value on a case prevented or a
human life. - 12Summarized disadvantages of CBA (iii)The advantage of placing dollar value on the benefit or outcome is also a disadvantage
- 13Economists recommend that CBA be conducted from the ----perspective?Societal Perspective
- 14Human Capital Mtd (HC) measures ...?1. Indirect benefits.
2. It is the most commonly used method to measure indirect benefits. - 15HC estimates ----?wage and productivity losses because of illness and disability or death
- 16HC assumes that the value of health benefits equals -----?the economic productivity they permit
- 17What are the 2 components of calculating HC?i) Wage rate
ii) missed time (days or years) bc of illness - 18A formula to calculate number of days worked per year is:Number of days in a year (365) - Number of weekend days (104) - Number of vacation days (14) - Number of sick-leave days (7) = 240.
- 19A yearly wage rate (income per year) would be calculated for a program or intervention that would reduce -----?long-term disability or death
- 20A daily wage rate can be calculated by....?income per year / number of days worked per year
- 21A daily wage rate (income per year divided by number of days worked per year) may be calculated for a program or intervention targeted at ----?an acute or chronic illness with short-term disability ( e.g. Asthma, allergies)
- 22Categories of missed days: Match the ff categories w/ examples: a. Missed work b. Missed housekeeping c. Restricted activity days d. Caregiver time 1. parent's time spent as a caregiver to a child who has an illness. 2. Days missed from work (for employed) 3. Days missed from housekeeping (for unemployed) 4. Percent of time during wh/ work or housekeeping was restricted. Did not miss an entire day of work or housekeeping but not productive for part of the dayd. parent's time spent as a caregiver to a child who has an illness.
a. Days missed from work (for employed)
b. Days missed from housekeeping (for unemployed)
c. Percent of time during wh/ work or housekeeping was restricted.
c. Did not miss an entire day of work or housekeeping but not productive for part of the day - 23Advantages of HC mtd (i)It is fairly straightforward and easy to measure
- 24Disadvantages of HC mtd (i)It may be biased against specific groups of people, namely unemployed individuals. It assumes that if a person is not working, he or she has little or no economic benefit. Children and unemployed elderly individuals are two groups with which bias can occur.
- 25Disadvantages of HC mtd (ii)The HC assumption that the value of health benefits equals the economic productivity they permit may also be biased.
- 26Disadvantages of HC mtd (iii)Does not incorporate values for pain and suffering if these values do not impact productivity
- 27Explain WTP mtd.1. Method can value both the indirect and intangible aspects of a disease or condition.
2. Method determines how much people are willing to pay to reduce the chance of an adverse health outcome.
3. Method is grounded in welfare economic theory, and it incorporates patient preferences and intangible benefits such as quality of life differences. - 28Contingent valuation (CV)...?1. the respondent is asked to value a contingent or hypothetical market.
2. is a direct method that is used to elicit the dollar values or the WTP amounts. - 29Measuring WTP using the CV method should include two general elements,--- (a) and (b)(a) a hypothetical scenario
(b) a bidding vehicle - 30Explain Hypothetical Scenario.1. HS should include a description of the health care program or intervention (e.g., medication therapy management program, new drug therapy).
- 31What is the intent of Health Scenario?1. The intent of the scenario is to provide the respondent with an accurate description of the good or service that he or she is being asked to value.
2. Scenario should detail the amount of time the person should expect to spend, as well as the benefit (% improvement) of the intervention - 32Explain Bidding Vehicles.1. After the intervention is described, respondents are asked to “bid,” or place a value on the program or intervention.
2. can be obtained through a variety of formats such as open-ended questions, closed-ended questions, a bidding game, or a payment cared. - 33Explain Bidding Game1. resembles an auction in that several bids are offered to reach a person’s maximum WTP.
2. Suggested that 3 bid adjustments is optimal. - 34Adv of Bidding GameMethod is useful to try to arrive at a person’s maximum WTP value.
- 35Disadv of Bidding Game1. It is time consuming
2. It is best conducted via a face-to-face interview or over the Internet.
3. The WTP values can be biased depending on how high (or low) the first bid is. This is called “starting point bias.” - 36Explain Payment Card1. The payment card method provides the respondent with a list of possible WTP amounts (i.e., payment card) to choose from.
2. Example: what is the max. you would be willing to pay - please circle your choice)
3. very easy to use and it provides respondents with a range of values to choose from. - 37Disadv of Payment Card1. Providing respondents with a range of values can bias their WTP values.
2. The range provided can “suggest” the value of the intervention and can influence what respondents say.
3. Also, “range bias” can influence the WTP amount. - 38Advantages of WTP1. a method to place a dollar value on intangible benefits
2. it is also grounded in welfare economic theory, which embodies patient preferences and choice. - 39Disadvantages of WTP1. It is difficult for people to place a dollar value on a health benefit or an increase in health-related quality of life or satisfaction
2. because a “hypothetical” scenario is presented, it is possible that respondents might give a “hypothetical response” - 40What are the biases involved in measuring WTP?1. Compliance Bias
2. Strategic Bias - 41What is Compliance Bias?occurs when respondents want to “please” the interviewer and may overstate their WTP values
- 42What is Strategic Bias?occurs when respondents over- or under-state their WTP values to strategically impact the outcome
- 43What are the 3 mtds used to calculate CBA?1. Net Benefit (or Net Cost) calculations
2. Benefit-to-Cost (or Cost-to-Benefit) ratios
3. Internal Rate of Return (IRR). - 44a. Net benefit = b. Net cost =a. total benefits - total costs
b. total costs - total benefits - 45In Net Benefit or Net Cost, Interventions would be considered to be cost-beneficial ifi) Net Benefit > 0 or
ii) Net Cost < 0 - 46Benefit-to-Cost ratio(Sum of the total benefits)/(Total cost)
- 47Cost-to-Benefit ratio(Total Cost)/(Sum of the total benefits)
- 48In Benefit-to-Cost (or Cost-to-Benefit) ratios, interventions are cost-beneficial ifi) Benefit-to-cost >1 or
ii) Cost-to-benefit < 1 - 49What is IRR?1. It is the rate of return that equates the present value (PV) of benefits to the PV of costs.
2. The goal is to find the rate of return that would make the costs and benefits equal. - 50Explain the relationship btw IRR and Hurdle rate.1. After the IRR is calculated, it is compared with a specified hurdle rate.
2. The decision rule for IRR is to accept all projects with an IRR greater than the hurdle rate.
3. If the IRR is greater than the hurdle rate, then it means that the project can yield a higher rate of return compared with some other investment. - 51If the IRR is greater than the hurdle rate, then it means --- what?--- that the project can yield a higher rate of return compared with some other investment
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- PE Unit 7 Exam Prep
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- Sam Adeyiga · Feb 2020
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- Feb 27, 2020
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