Unbiased Analysis of Today's Healthcare Issues

Willingess to pay (WTP) perspectives

Written By: Jason Shafrin - Feb• 14•08

Many health economists wonder how much individuals would be willing to pay for a treatment. Since most medical care is paid by third parties (i.e. private insurance companies or the government) we can not use revealed preference econometrics which has been used in other areas of economics. Instead, many economists ask individuals directly these valuation questions. Yet simply asking the question is not enough. Do you ask the person how much they should pay for a treatment for an illness they do not yet have? Or should we only ask patients who have the disease how much they would be willing to pay for their own treatment? In healthcare systems that are run by the government, one may also want to know how much a person would pay for treatment for other people’s diseases.

In order to understand, what perspective should be taken, a paper by Dolan et al. (Health Economics 2003) uses a simple chart to illustrate six different perspectives:

  Ex-ante Ex-post
Personal 0<pp<1; po=0 What value do you attach to treatment being available should you need it? pp=1; po=0 What value do you attach to your own treatment?
Social pp=0; 0<po<1; What value do you attach to treatment being available to others should they need it? pp=0; po=1 What value do you attach to the treatment of others?
Social inclusive personal 0<pp<1; 0<po<1; What value do you attach to treatment being available to a group of people amongst whom you might find yourself pp=1; po=1 What value do you attach to the treatment of yourself and others?
         

The term pp gives of the probability of one’s own need for treatment, and po is the probability that others in society will need treatment.

Why is it important for researchers to keep track of all these different perspectives when measuring willingness to pay (WTP)? Dolan notes that empirically, “real patients often give higher valuations than hypothetical patients.” Yet this need not be the case. If patients, ex-post, have adapted to the disease to a significant degree, than hypothetical patients may have higher valuations that real patients.

Whenever a researcher is investigating WTP measures, they must very cautious as to the perspective under which the question is asked.

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  1. Tom Leith says:

    So, I have a question.

    In the personal—ex ante cell, is “willingness to pay for insurance” a good proxy for willingness to pay for treatment or does that assume an even less-bounded rationality than really exists?

    Similarly, in the social—ex ante cell, is willingness to pay more tax a good proxy for willingness to pay for the treatment of others?

    And in the Social case, I don’t understand what “others” might be referred to: what does pp=0; 0<po<1; mean??? The probability that “others” will require treatment is 1 if by “others” we mean “everyone”. This must mean something else.

    If we mean “everyone” the it seems to me there is no difference — not even a theoretical difference between the ex ante and ex post social case.

    t