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Incorporating option values into the economic evaluation of health care technologies
Author(s)Stephen Palmer, Peter Smith
Corporate AuthorCentre for Health Economics, University of York
PublisherUniversity of York, York, 1999
Pages24 pp (Centre for Health Economics discussion paper 166)
SourcePublications Centre, Centre for Health Economics, University of York YO1 5DD.
KeywordsHealth services ; Costs [care] ; Econometrics.
AnnotationDespite uncertainty being intrinsic to economic evaluation of health care, existing techniques for handling uncertainty remain underdeveloped compared to formal techniques commonly applied in the business sector. This paper develops an alternative approach to handling uncertainty in economic evaluation, based on quantifying uncertainty using "option pricing" techniques. The central feature of option pricing is that investments are rarely "now or never" propositions. The presence of uncertainty and the degree of irreversibility of a decision makes it clear that some flexibility in the timing of a decision is often a desirable characteristic with an economic value. The paper identifies the key determinants of the "option value" and its implications for health technology assessment, namely the presence and type of uncertainty; the ability to defer a decision; and the irreversibility of the decision. (RH).
Accession NumberCPA-990420213 B
ClassmarkL: QDC: WE

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