Article

The value of disease prevention vs treatment

Christoph Rheinberger, Daniel Herrera-Araujo, and James K. Hammitt

Abstract

We present an integrated valuation model for diseases that are life-threatening. The model extends the standard one-period value-per-statistical-life model to three health prospects: healthy, ill, and dead. We derive willingness-to-pay values for prevention efforts that reduce a disease's incidence rate as well as for treatments that lower the corresponding health deterioration and mortality rates. We find that the demand value of prevention always exceeds that of treatment. People often overweight small risks and underweight large ones. We use the rank dependent utility framework to explore how the demand for prevention and treatment alters when people evaluate probabilities in a non-linear manner. For incidence and mortality rates associated with common types of cancers, the inverse-S shaped probability weighting found in experimental studies leads to a significant increase in the demand values of both treatment and prevention.

Keywords

Health risk valuation; Chronic disease; Willingness-to-pay; Probability weighting; Value of prevention;

JEL codes

  • D11: Consumer Economics: Theory
  • D81: Criteria for Decision-Making under Risk and Uncertainty
  • I10: General

Replaces

James K. Hammitt, Daniel Herrera-Araujo, and Christoph Rheinberger, The Value of Cancer Prevention vs Treatment, TSE Working Paper, n. 16-628, February 2016.

Reference

Christoph Rheinberger, Daniel Herrera-Araujo, and James K. Hammitt, The value of disease prevention vs treatment, Journal of Health Economics, vol. 50, December 2016, pp. 247–255.

Published in

Journal of Health Economics, vol. 50, December 2016, pp. 247–255