Deriving welfare measures from discrete choice experiments: inconsistency between current methods and random utility...

Area of Science:

• Health Economics
• Behavioral Economics
• Econometrics

Background:

• Discrete choice experiments (DCEs) are widely used in health economics to assess preferences for healthcare interventions.
• Willingness to pay (WTP) and marginal willingness to pay (MWTP) are common welfare measures derived from DCEs.
• Existing methods for calculating welfare measures from DCEs in health economics lack theoretical grounding in random utility theory (RUT).

Purpose of the Study:

• To identify inconsistencies in current welfare measure derivations from DCEs in health economics.
• To propose an alternative method for calculating welfare measures (compensating variation) consistent with RUT.
• To demonstrate the application and compare the proposed method with existing approaches using asthma medication data.

Main Methods:

• Critically evaluate current welfare measure derivation methods against RUT and microeconomic welfare theory.
• Develop and apply an alternative method based on compensating variation derived from RUT.
• Empirically apply both methods to DCE data for asthma medication.

Main Results:

• Current DCE welfare estimation methods in health economics are inconsistent with RUT and general welfare theory.
• The proposed compensating variation method provides welfare estimates consistent with RUT.
• Empirical application shows differences between the current and proposed methods for asthma medication WTP.

Conclusions:

• The theoretical limitations of current DCE welfare estimation methods restrict their use in cost-benefit analyses.
• The proposed RUT-consistent method offers a more theoretically sound approach for deriving welfare measures from DCEs in health economics.
• Accurate welfare measurement is crucial for reliable cost-benefit analyses of health programs.