Health economics is concerned with the efficient and equitable allocation of resources in the context of scarcity and uncertainty, and is relevant to individuals, practitioners, governments and markets. Changing factors such as an aging population and new technologies becoming available are increasing expectations from people as a whole throughout the world, and decision makers must make rational choices to maximise benefits to population health whilst working with limited resources. 2 summarises this by asserting that "health care resources in every setting are always constrained, while unlimited demand is observed". The 'best' choices in the context of economics are the ones which maximise utility (individual satisfaction through consumption of goods) and welfare, the sum utility experienced by all individuals in society. Decision makers often have to seek satisfactory rather than optimal solutions, also known as working with 'bounded rationality' (simon in 3), as it is important to pursue both efficiency and equity in the funding of health care. Therefore, it may be unsuitable to fund the most cost effective option if it sacrifices the equal distribution of benefits. Research in health economics can take a normative or positive approach and this reflects the balance needed between cost effectiveness and equity when making economic decisions. Positive economic research and analysis is concerned with 'how things are' (1) and seeks to explain economic phenomena, whilst normative economic research and analysis is concerned with 'how things ought to be' and relies on value judgements of individuals (1). Downie in 3 describes positive economic research as knowledge generation, in which the costs and benefits of various options are described and compared, whilst normative economics is the basis for decision making. This raises contention between decision makers, because as (1) states, normative economics is based on value judgements which vary between individuals. Economic evaluation is a technique which can take both positive and normative approaches to analysis, allowing costs and benefits to be compared to maximise welfare, and can therefore make a valuable contribution to the decisions made by policy makers in terms of both knowledge and value judgements.
Overview of economic evaluation
Economic evaluation is a useful tool allowing decision makers to address allocation problems caused by scarcity through comparing the costs and consequences of various health interventions and assessing value for money. Rationing is a consequence of economics as, in the context of scarcity, a decision made to provide one treatment will displace the provision of another resource (1). Economic evaluation allows economists to ensure that the cost of providing a resource does not exceed the gain in health benefits (1). It is not used to provide policy makers with the cheapest health care intervention but, as (1) states, allows them to establish the...