The need for a new framework for the economic evaluation of health services in a national health scheme

The normative theory of economic evaluation and its welfare theoretic basis are deeply problematical and result in recommendations which are potentially unfair. The root cause of the problem is the set of assumptions behind the theory which posit behaviours and motivations that are not universal, and which exclude other behaviours and motivations that are potentially important. As falsification of assumptions may be evaded indefinitely this paper presents an alternative critique. We commence with six anomalies with the theory which are attributable to the assumptions. The first three-the net present value criterion, the willingness to pay criterion and moral hazard-arise from welfare theory. The remaining three are associated with the present definition of cost, the concept of efficiency and the omission of sharing, which are common to most economic evaluation. We argue that these anomalies are indicative of a defective core theory and that they are equivalent to observations that conflict with a positive theory. In the final section we outline and illustrate a more general framework for decision making that is capable of overcoming the anomalies we discuss.