Halvor Mehlum and Karl Moene
This article explores the tendency for poverty and conflict, as well as for prosperity and peace, to reinforce one another, examining two specific factors. One is the type of rents that adversaries may contest, as rents can differ in terms of the vulnerability of their value to conflict; more vulnerable rents tend to induce more peace, whereas less vulnerable rents have the opposite effect. The second factor concerns the relationship between the elites and the entrepreneurs in their respective groups—specifically, the extent to which the elites care about their entrepreneurs. While these two factors can predispose countries to either virtuous or vicious circles, multiple equilibria are also possible.
This is an overview of the methods used to evaluate projects or policies when a normative approach is taken based on individual preferences. The evaluation of individual welfare change is first outlined and related to the concepts of willingness-to-pay and willingness-to-accept. The use of individual welfare measures in project evaluation is outlined. This is followed by approaches to aggregating individual welfare changes. The case for ignoring equity considerations based on the compensation criterion is critically discussed. The use of a social welfare function for cost-benefit analysis is presented, and it application to project evaluation outlined. Several extensions are considered, including the evaluation of non-marketed commodities, the treatment of uncertainty, and multi-period project evaluation. Throughout, the conceptual difficulties of measuring and aggregating welfare change are emphasized.
Andrew M. Jones and Nigel Rice
This article devotes considerable attention to new econometric methodologies that have been used to assess health care econometrics. The goal of evaluative research is to identify the causal impact of an intervention on outcomes of interest and to understand the mechanisms underlying this impact. This article addresses a two-fold interest, in the evaluation of a particular treatment as well as in the evaluation of a broader policy intervention or program, such as a ban on smoking in public places or a reform of provider reimbursement. It refers to individuals as the target of the policy interventions. It mentions that selection on treatment is based only on observables. Ex post evaluation is crucial in understanding the true impact of a treatment or policy. This article outlines approaches to the ex post evaluation of treatment effects by comparing outcomes across suitably constructed treatment and control groups.
Gregory Colman and Dhaval Dave
Many questions arising in research in economics and human biology cannot be studied through experimental manipulation, making the ideal randomized controlled trial (RCT) infeasible. Often the only data available are observational, and the researcher must confront the challenge of the nonrandom choice of the independent variable, known as the self-selection problem. This chapter describes this selection bias and discusses the central econometric techniques that economists have in their arsenal to guide causal inference with nonexperimental data, with a particular focus on implementation and key identifying assumptions underlying each empirical strategy. Applications are drawn upon in which this selection bias is addressed. Also included in the chapter is a brief discussion of issues relating to treatment heterogeneity and methods that allow the causal effect to vary among persons, either by unobserved or observed characteristics, which may help reveal in which subsets of the population the estimable or interesting causal effect applies.
Frank A. Sloan
This article discusses preventive vaccines, focusing on features that differentiate these vaccines from other biopharmaceuticals. The external costs of infectious diseases imply external benefits from effective vaccines, and this has motivated public mandates, purchasing, and subsidies to demand for vaccines in most countries and government subsidies to supply for particular products, such as Project Bioshield in the United States. The article reviews these issues and then discusses factors that have contributed to the existence of few or sole suppliers of individual vaccines in the United States and possible policy responses.
Craig Garthwaite and Mark Duggan
This article begins by summarizing the existing evidence concerning the effect of pharmaceuticals on overall health. It then examines evidence of the health benefits of pharmaceuticals for the most commonly used treatments for widespread chronic and life-threatening conditions. It focuses on the most widespread conditions and those for which the utilization of prescription medication has changed the most dramatically over the last two decades. A broader question about the total value of pharmaceuticals involves the net benefit of these medications. There is a growing debate in the literature specifically about whether new drugs are worth more than their costs. The largest debate focuses on whether spending on these new drugs leads to even larger decreases in nonprescription drug spending whether the new drugs are cost-effective (i.e., providing enough health benefits to outweigh their costs relative to an alternative treatment method), or neither. The article considers existing evidence on the net benefits of these medications in terms of cost savings from nondrug health spending. Finally, it discusses the growing body of literature focusing on the nonhealth benefits of pharmaceuticals.
Globalization and International Conflict: Can Foreign Direct Investment Increase Cooperation Among Nations?
Solomon W. Polachek, Carlos Seiglie, and Jun Xiang
There is a long-standing literature that has examined how international trade itself might induce cooperation and peace among states potentially in conflict. In particular, despite some disagreements between leaders of different states, these leaders could be induced to maintain peace if war implies a disruption of trade, and such trade is essential to the performance of each state's economy. Mutual economic interdependence, then, could induce peaceful relations. This article takes this line of reasoning one step further, to consider both theoretically and empirically the positive influence of international capital flows on peace between nations.
Donna Rowen and John Brazier
Measuring and valuing health is a major component of economic evaluation, meaning that health utility measurement has been growing in popularity in recent years due to the increasing demand for health state values in economic models and evaluations. The main issues in health utility measurement are how to describe health states, how to value the health state description and whose values should be used. This article briefly outlines these main issues and then focuses on recent methodological developments in health utility measurement. It assesses the current state of health utility measurement and discusses the question of assessment of a health state to be used in economic evaluation. The discussion whether experience utility should be used rather than conventional preference-based utility raises important issues about perspective and the role of various factors.
Eddy Van Doorslaer and Tom Van Ourti
This article examines the measurement of the success of the redistributive function describing strategies used for measuring the inequality of the outcomes of a health care system in terms of the use of care. The discussion of inequalities can be divided into health, health care, and health care payments. This article is concerned with the association between income, on the one hand, and health and health care, on the other. It further discusses the potential underlying causal pathways of this association. It explains in detail that a significant association or causal effect is a necessary but not sufficient condition for the presence of inequalities. Finally, it reviews the economics approaches of measuring socioeconomic inequalities in health and health care that are applied in the empirical literature. The measurement tools developed and used by health economists to analyze socioeconomic inequalities in health and health care are also discussed.
Thomas Pogge and Scott Wisor
This chapter documents a participatory approach to developing a new, gender-sensitive measure of deprivation that improves upon existing measures of poverty and gender equity. Over three years, across 18 sites in Angola, Fiji, Indonesia, Malawi, Mozambique, and the Philippines, men and women in poor communities engaged in a range of qualitative discussions and quantitative evaluation exercises to help develop the Individual Deprivation Measure. The IDM tracks deprivation in 15 dimensions, uses interval scales within dimensions, and can easily be administered in most impoverished areas. It represents a significant advance in multidimensional measurement by focusing on individuals rather than households, by covering all important dimensions of poverty, by being gender-sensitive in the selection and coding of dimensions, and by being appropriately sensitive to the depth of deprivation. The IDM demonstrates the possibility of establishing objective tools of social valuation through a process of public reason.
Adrian Towse, Michael Drummond, and Corinna Sorenson
Government-run or -regulated health care systems have adopted complex systems of economic regulation to control pharmaceutical expenditures, which are generally an ad hoc mix of historical policies. There has, however, been a substantial increase in the number of third-party payers using formal cost-effectiveness analysis (CEA) or pharmacoeconomic approaches for assessing the value of drugs, vaccines, and other health technologies to inform decisions about pricing, reimbursement, and use within their health care systems. This article explores the theoretical and practical issues that have arisen in the application of CEA for drugs to resource allocation decisions in health care and in the regulation of pharmaceutical prices and use. It begins by outlining the evolution of CEA from the practice of health technology assessment.
Focusing on methodologies of measuring the costs of conflict, this article provides a review of primarily econometric methods for cost measurement using models as guides to counterfactual scenarios. The second section reviews the method of cost accounting. The third section comments on regression methods using cross-section data. The fourth section examines the contribution of time series methods, in particular, interrupted time series, transfer function, and vector autoregression methods. The fifth section reviews regression methods using panel data. The sixth section covers event studies from financial economics. The seventh section reviews natural experiments. The eighth section reviews the comparative case study method. The last section offers a view of the road ahead.
The Methods of Cost-Effectiveness Analysis to Inform Decisions about the Use of Health Care Interventions and Programs
Simon Walker, Mark Sculpher, and Michael Drummond
Health care systems exhibit their features and nuances that impose constraints on the appropriate way to analyze interventions and make decisions about their implementation. This article seeks to explain the theoretical foundations of these methods and their implementation in practice. It focuses on a budget constrained health care sector, where implementing a new technology with additional costs will result in other health care services being displaced hence forgoing health improvement elsewhere. It is intended to provide grounding in the policy motivation for economic evaluation and the underlying normative issues in undertaking studies. The article further develops the key elements of undertaking economic evaluation in practice. It outlines a simple scenario regarding the comparison of chemotherapy treatments for breast cancer. This example helps to illustrate some of the conceptual issues raised in this article. The approaches that have been taken to quantify outcomes and costs from health care interventions are also discussed.
Satya Chakravarty and Maria Ana Lugo
This chapter reviews the main features of multidimensional indices of inequality and poverty. For each of these cases, the discussion is divided into two approaches: a direct approach, where desirable properties are specified and a measure of inequality or poverty obtained; and the inclusive measure of well-being approach, where an index of individual well-being is defined in a first step, and the measure of inequality or poverty obtained in a second step. The emphasis will be on the properties that different measures satisfy and on the main justifications put forward when properties disagree. A systematic comparison between indices, whenever appropriate, is presented. Several policy applications of the indices are also discussed.
Jean-Yves Duclos and Luca Tiberti
This chapter reviews and assesses issues involved in the measurement of multidimensional poverty, in particular the soundness of the various “axioms” and properties often imposed on poverty indices. It argues that some of these properties (such as those relating poverty and inequality) may be sound in a unidimensional setting but not so in a multidimensional one. Second, it addresses critically some of the features of recently proposed multidimensional poverty indices, in particular the Multidimensional Poverty Index (MPI) recently put forward by the United Nations Development Program. The MPI suffers from several unattractive features that need to be better understood (given the prominence of the index). The MPI fails in particular to meet all of three properties that one would expect multidimensional poverty indices to obey: continuity, monotonicity, and sensitivity to multiple deprivation. Robustness techniques to address some of the shortcomings of the use of such indices are briefly advocated.
Ana Aizcorbe and Nicole Nestoriak
This article begins by describing the many challenges of constructing meaningful price indexes in medical markets. It examines practical issues associated with how prescription drug price indexes are constructed in the United States and how they may be used to decompose the growth in spending into price and quantity components. It shows that drug price indexes are very sensitive to a number of modelling decisions, such as whether to use price per day of treatment, price per prescription, or price per package; whether to define a product narrowly (e.g., with a national drug code [NDC] that represents a product) or broadly (e.g., as a molecule, which includes both the patented drug and any generic entrants); and how often to change the weights assigned to each item in the basket. For example, between 2003 and 2005 the narrow NDC-based price index grew about twice as fast as the broader molecule-based index due to patent expirations and switching to generic alternatives during this period.
Jose Maria Abellan, Carmen Herrero, and Jose Luis Pinto
This chapter introduces the main ideas about the use of quality-adjusted life years (QALYs) in the evaluation of health policies. It starts by explaining the theoretical underpinnings of the QALY model understood as individual utilities. Afterward, it reviews the empirical evidence about the descriptive validity of the main assumptions supporting the model. Then, it explains the main preference elicitation techniques (visual analog scale, time trade-off, and standard gamble). It also shows the practical psychological problems faced by these techniques, such as the existence of context-dependent preferences. The chapter ends by explaining how QALYs are used in priority setting, in particular, the rules governing resources allocation decisions using QALYs, the ethical implications of these rules, and the relationship between cost-benefit analysis and cost-effectiveness analysis.
This chapter describes strengths and limitations of three twins methods developed in economics: control for unobserved genetic and family background endowments using monozygotic (MZ) twins fixed effects (FE) to estimate e.g. impacts of schooling on wages, health, and other outcomes; estimation of key parameters in intrafamilial models of investment in children using MZ and dizygotic (DZ) twins; and investigation of familial responses to fertility shocks within the quantity-quality fertility model using MZs and DZs. It also describes strengths and limitations of a fourth twins method used most widely outside of economics: variance decomposition of phenotypes into genetic and environmental components to obtain heritability estimates with additive genetics, common environment and unique environment (ACE) models using MZs and DZs. The chapter concludes that the first three twins methods remain valuable for learning about important empirical parameters in economics despite development of genetic sequencing. The fourth method is less useful in economics.
Understanding Differences in Mortality and Morbidity by Sex: The Role of Biological, Social, and Economic Factors
There are important differences in the health of men and women. While women typically report worse health than men and suffer from more health conditions, they also live longer. These patterns become less paradoxical when analyzed in greater detail: Women and men suffer from different conditions, especially at younger ages. In particular, women are more likely to suffer from chronic conditions, while men are more likely to suffer from life-threatening conditions. In this chapter, I document these differences and summarize biological, economic, and social explanations of sex differences in health. Despite a large literature exploring sex differences in health, much remains to be learned about the interaction of biological, economic, and social factors and their effects on health.