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Welfare Economics and Health Economics


Health economists work in a mixture of areas. A great deal of work is of a descriptive nature investigating issues concerning the environment of health care systems as well as wellbeing more generally.

Normative health economics is paying attention to the economic assessment of interventions, mostly medical or organizational, to support decision-makers in designating health care funds. Economic assessment of health care derives initially from standard Paretian welfarist opinions (Boadway & Bruce, 1993), subsequently the essential values that individuals are the best judges of their own interests (happiness) as well as that, if one individual can be made in good health off without other individual being made worse off, there is a comprehensive development in welfare.

In society’s point which health care is viewed as a good quality to be developed and distributed by the state, though, there are two visible challenges with cost-benefit analysis. The initial of these is connected with allocation: by basing the capacity of ‘welfare’ on preparedness-to-pay this welfare is also influenced by the capability to pay and the portion of health care resources could thus be distorted towards the well-off. The second is realistic: numerous people in such societies are intensely uneasy with the idea of valuing duration and quality of life in economic terms and are thus reluctant to partake in such movements (Coast, 2004).

An optional conceptualization, which is gaining strength within the conventional welfare economics, is the aspiration to determine experienced utility (Kahneman, Wakker & Sarin, 1997), as well as coupled with the amount of happiness/life satisfaction/subjective well-being (Di Tella and MacCulloch, 2006). The experienced utility is well-known from decision utility on the basis that it is a straight measure of utility and does not necessitate individuals in one way or another to put themselves in a particular theoretical condition. Two advantages of measuring experienced utility are noted: it takes the description of an individual’s adjustment to the changed situation, and by asking a common query about happiness it does not need people to focus on a particular feature of their present position (Kahneman & Sugden, 2005).


The concept of the capabilities approach is drawn from Amartya Sen’s creative work on functioning and capability ([Sen, 1982a], and [Sen, 1993). The work of Sen’s starts away from welfare economics, in which she uses the utility as the foundation for assessing programs or interventions. In its place, she supports the evaluation of programs on the foundation of functionings and, preferably, capabilities. Sen differentiated four different features of the association between a good and an individual: a ‘good’ is the item; ‘utility’ is the happiness or gain derived from that item; ‘characteristics’ are qualities of goods; and ‘functioning’ speak about to the individual’s use of the good (Sen, 1982a). Sen also put forward that functionings may comprise of basic functions such as ‘moving, being well-nourished, being in good health, and being socially respected.’ (Sen, 1982a)

Robeyns explained that the capability approach as being ‘a wide normative structure for the evaluation and assessment of individual well-being and social arrangements, the aim of policies, and proposals about societal change’ (Robeyns, 2006) (p. 352). The innermost dispute by means of capabilities in health care decision making is that the basic normative framework that is presented by the capability approach is additionally suitable for the assessment of health care programs and interference than other approaches.

The seeming significance of health led economists besides clinicians and decision analysts to practice a so-called ‘decision maker’s’ approach, in which the focal point was seen to be societal objectives as agreed by decision-makers in charge of making decisions across the population (Culyer, 1981).

Brouwer points out, that though ‘welfarists could analyze the decision-maker approach, maintaining it has no theoretical structure, as it is not yet fixed in the standard welfare economic theory’ (Brouwer & Koopmanschap, 2000) (p. 440). In essence, the decision-maker approach rests on little more than a declaration by economists and decision analysts that what matters to decision-makers and to the society to which they are responsible is the maximization of health (Coast, 2004),

Secondary to the extra-welfarist approach is that the individual’s own judgment concerning their usefulness may not be dominant. as an alternative, in the example of health care, it is required to choose whose weights must be applied to different health states (Culyer, 1990) and followed by utilizing these to optimize resources by balancing insignificant health production per component of cost across unusual activities (Culyer, 1989) certainly, there is a present of continuing on a foundation of health economists who favor the welfarist approach surrounded by health care, several of whom remain different to the extra-welfarism of health economics, mainly for the reason that the dependence on health alone as being central in evaluation, and others who are promoting the direct measurement of happiness or experienced utility (Dolan and White, 2006). In spite of claim from the extra-welfarist camp (Brouwer et al., 2008)) that extra-welfarism is not concerned with health alone, in practice the longing for a solitary maximand with no any noticeable means of merging health with utility information has made these claims difficult to validate.

There are two interlinked basis, why health as the only focus of alarmed is seen by a number of health economists as being unsuitable. First, it is becoming more and clearer that a quantity of health intervention result in outcomes rather than health. Such interventions could force on broader characteristic of quality of life, such as the ability to form or maintain friendships, feel safe or retain dignity and self-respect, to a certain extent than health per se, in great part since their benefits may cross outside of the health sector (Kelly, McDaid, Ludbrook & Powell, 2005). next, there is the increasingly large quantity of confirmation that the maximisation of health gain is not all that citizens are concerned about in relation to health care decision making (Coast, 2004).


Health economics start on as a derivative from economics, conveying with its standard majority economic theory, of which welfarism is undoubtedly a part. In the background of health, the capability approach make available a theory to draw ahead which was more in line with progress that were previously being prepared to make more satisfactory the way by which economists were advocating the allocation of health care resources.

The capability approach, on the other hand, is a tough candidate to modify the ideas of health economics, heath care decision making and, ultimately, health even further over the coming years.


Boadway and Bruce, R.W. Boadway and N. Bruce, Welfare Economics, Blackwell, Oxford (1993).

Brouwer et al., W.B.F. Brouwer, A.J. Culyer, N.J.A. van Exel and F.F.H. Rutten, Welfarism vs. extra-welfarism, Journal of Health Economics 27 (2008), pp. 325–338.

Brouwer and Koopmanschap, W.B.F. Brouwer and M.A. Koopmanschap, On the economics foundations of CEA. Ladies and gentlemen, take your positions!, Journal of Health Economics 19 (2000), pp. 439–459.

Coast, J. Coast, Is economic evaluation in touch with society’s health values?, British Medical Journal 329 (2004), pp. 1233–1236.

Di Tella and MacCulloch, R. Di Tella and R. MacCulloch, Some uses of happiness data in economics, Journal of Economic Perspectives 20 (1) (2006), pp. 25–46

Kahneman and Sugden, D. Kahneman and R. Sugden, Experienced utility as a standard of policy evaluation, Environmental and Resource Economics 32 (2005), pp. 161–181.

Sen, A. Sen, Choice, welfare and measurement, Harvard University Press, Cambridge, MA (1982).

Sen, A. Sen, Capability and well-being. In: M.C. Nussbaum, Editor, The quality of life, Clarendon Press, Oxford (1993).

Robeyns, I. Robeyns, Sen’s capability approach and gender inequality: selecting relevant capabilities, Feminist Economics 9 (2–3) (2003), pp. 61–92.

Culyer, A.J. Culyer, Health, economics, and health economics. In: J. Van der Gaag, Editor, Health, economics, and health economics. Proceedings of the World Congress on health economics, Leiden, The Netherlands, September 1980, North Holland Publishing Company, Oxford (1981), pp. 3–11.

Culyer, A.J. Culyer, The normative economics of health care finance and provision, Oxford Review of Economic Policy 5 (1) (1989), pp. 34–56.

Culyer, A.J. Culyer, Commodities, characteristics of commodities, characteristics of people, utilities, and the quality of life. In: S. Baldwin, Editor, Quality of life. Perspectives and policies, Routledge, London (1990), pp. 9–27.

Kelly et al., M.P. Kelly, D. McDaid, A. Ludbrook and J. Powell, Economic appraisal of public health interventions. Briefing paper, Health Development Agency, London (2005).

Dolan and White, P. Dolan and M. White, Dynamic well-being: connecting indicators of what people anticipate with indicators of what they experience, Social Indicators Research 75 (2006), pp. 303–333.


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