Consumer discount rates for health and money in health care cost-effectiveness analysis

Robert Alan Connor, University of Pennsylvania


This work addresses the positive question--"What rate do people use to discount health (or other non-monetary benefits)?" and the normative question--"How should money and health be discounted in cost effectiveness analysis?" The standard approach to time discounting (Fisher: 1906, 1930; Weinstein and Stason, 1977; Keeler and Cretin, 1983) uses a single rate from the capital markets to discount all commodities. However, if there are changes in consumers' ability to convert a commodity into money over time then this probably does not reflect true consumer preferences. An alternative "holistic" approach Lipscomb (1982, 1989) is to measure actual consumer time preference for specific future outcomes. In holistic evaluation, however, a program which seems good from far away may seem bad up close, or vice versa--myopia. A second problem with using consumer time preference is that when the rate for benefits is always less than that for money and indefinite program postponement is possible, the C/E ratio will be minimized by indefinite postponement (Keeler and Cretin, 1983). This work proposes a method of incorporating consumer time preference into economic analysis without myopia or indefinite postponement. An integrated model of utility over time and under uncertainty is proposed and used to separate time preference into myopic and non-myopic components. The results of the empirical investigation involving a questionnaire given to 158 MBA students include: (1) Discount rates for health are lower than those for money; and (2) Discount rates for health and money change over time. The results may be amplified for people who have not received instruction in standard economic models. Thus, it is not safe to assume that individuals' discount rates are the same for all commodities or for all time periods. Using the rate for money to discount health may discount future health outcomes too much. Another result of this study is evidence of commodity-specific risk aversion. There was much greater risk aversion (at intermediate probabilities) toward a possible loss of health than toward a possible loss of wealth, even when the health outcome had the same or less value as the monetary outcome at 100% certainty.

Subject Area

Economics|Public health|Health care

Recommended Citation

Connor, Robert Alan, "Consumer discount rates for health and money in health care cost-effectiveness analysis" (1990). Dissertations available from ProQuest. AAI9112549.