Valuing health system resilience: The limits of conventional economic evaluation under catastrophic risk

Health system resilience has emerged as a critical policy priority following recent global health emergencies, yet conventional economic evaluation methods are poorly equipped to value preparedness investments that reduce vulnerability to rare, catastrophic shocks and enhance capacity to manage them.

To examine the alignment between economic evaluation methods and preparedness investments addressing catastrophic shocks, and to identify alternative frameworks for valuing such investments under deep uncertainty.

We undertake a critical synthesis, drawing on health system resilience frameworks, environmental economics, and decision science. We analyse preparedness investments across three domains: prevention (reducing shock probability), absorptive capacity (redundancy and buffers), and adaptive capacity (flexibility to reconfigure resources), illustrated by the COVID-19 pandemic.

Standard economic evaluation cannot adequately value preparedness investments addressing rare, catastrophic risks. Cost-effectiveness analysis operates within predetermined budgets that such events, if realised, would overwhelm; cost-benefit analysis becomes unstable when the probability distributions of such events are fat-tailed. Prevention investments face an additional challenge: the benefits of successful prevention are counterfactual and therefore difficult to demonstrate to decision-makers. Absorptive capacity functions as insurance, valuable because shocks might occur, but this value is difficult to quantify under fat-tailed uncertainty. Adaptive capacity carries option value that conventional appraisal is ill-suited to capture.

The limitations of cost-benefit and cost-effectiveness analysis in valuing preparedness investments are inherent to these methods. Alternative frameworks, including real options analysis, robust decision-making, and multi-criteria assessment, offer promise but require institutional reforms that recognise the strategic and uncertain nature of these investments.