Measuring Cost-EffectivenessAs we have formulated the approach, it is a form of cost-
effectiveness analysis. We measure the costs in one set of
units (money) and the benefits in another (happiness- years).
And we assume that the total amount of money available
is predetermined. By contrast in traditional cost- benefit
analysis both benefits and costs are in the same units. So
traditional cost- benefit, applied across the board, in princi-
ple determines the total scale of public expenditure. As we
explain later, this is politically unrealistic. So our form of
cost- effectiveness analysis is a sensible way forward for the
analysis of public expenditure.
It is similar to what is already meant to happen with Na-
tional Health Service expenditure in Britain. For all the pos-
sible treatments, the government guidelines^5 evaluate the
gain in Quality- Adjusted Life Years (QALYs) and the cost.
The treatment is then approved if the cost is below a given
amount per QALY, with a cut- off of around $35,000 per
Q A LY.^6
This type of approach makes sense for all aspects of our
national life, but using happiness- years rather than QALYs.
To be more explicit, we propose that benefits be measured
in point- years of happiness, where one happiness point- year
corresponds to one individual being one happiness point
higher for one year. Since happiness is measured over the
range 0– 10 and QALYs are measured over the range 0– 1,
that would make 10 happiness- years “equivalent” to one
Q A LY.^7
So what cut- off should be used as the maximum cost
per happiness point- year? In the end this has to be found
by trial and error. But where to start? In Britain it might
make sense to start with the same cut- off as for health. This