Benefit-cost and cost-effectiveness analysis: theory and application

Benefit-cost analysis and cost-effectivensss analysis are terms used with increasing frequency by health planners and those concerned with review and evaluation of specific programs. The economic bases for these formal techniques are however often obscured by adaptations of convenience or misapplications of the concepts by biological scientists (and others). This paper reviews briefly the theory of benefit-cost analysis and its potential as a tool in choosing programs of optimum size, of maximum economic efficiency as a given size, and in choosing amongst worthwhile alternative projects. Because of the difficulties of quantification of necessary data and the political nature of many policy decisions, the technique of benefit-cost analysis seldom finds application but cost-effectiveness emerges as a calculus of more practical use and acceptability. Examples are drawn from WHO papers and the medical literature to illustrate the "benefits and risks" of these techniques.