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Related Experiment Videos

The friction cost method: a comment.

M Johannesson1, G Karlsson

  • 1Department of Economics, Stockholm School of Economics, Sweden. hemj@hhs.se

Journal of Health Economics
|March 8, 1997
PubMed
Summary
This summary is machine-generated.

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The friction cost method, used for estimating indirect costs, is not a viable alternative to the human-capital approach. Its assumptions contradict economic theory and would incorrectly reduce healthcare program costs.

Area of Science:

  • Health Economics
  • Economic Theory
  • Cost-Benefit Analysis

Background:

  • The human-capital approach is a standard method for estimating indirect costs.
  • The friction cost method has been proposed as an alternative for indirect cost estimation.

Purpose of the Study:

  • To critically evaluate the assumptions and implications of the friction cost method.
  • To compare the friction cost method with the human-capital approach for estimating indirect costs.

Main Methods:

  • Theoretical analysis of the friction cost method based on neoclassical economic principles.
  • Examination of the consequences of applying the friction cost method to direct cost estimation.

Main Results:

  • The friction cost method relies on implausible assumptions unsupported by economic theory.

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  • Consistent application would necessitate its use for direct costs, significantly underestimating healthcare program expenses.

    • Conclusions:

    • The friction cost method is not a theoretically sound or practically useful alternative to the human-capital approach for indirect cost estimation.
    • The method's assumptions lead to a substantial decrease in estimated healthcare program costs.