Chapter 15Why Not Measure Benefits in Units of Money?
Assembling the information needed for the new approach is
a real challenge, but so it is with traditional cost- effectiveness
analysis where benefits are measured in units of money. So
what problems can the new approach handle that cannot
be handled when benefits are measured in units of money?
In traditional cost- effectiveness analysis, benefits and
costs are measured in money units by estimating what peo-
ple would be willing to pay for having the benefits and for
avoiding the costs. The unit of measurement is money, the
idea being that people are willing to pay more for some-
thing if it produces more happiness.
But willingness to pay works only when people can show
by their choices how much they value different outcomes.
Sometimes they can do, this but often they cannot. They can
do it for things like transport, industry, education, and some
aspects of environment. But many outcomes are not things
that people can choose— they are things that just happen
to people through outside influences (what economists call
external effects). People catch infectious diseases, children
get abused, elderly people get abandoned, and people get
mugged. Moreover people are often ignorant about key
areas of choice, as in health.
We cannot learn about how much people value these
issues by observing people’s choices. So how are we to evalu-
ate policies like a vaccination program, or child protection,
or family courts, or elderly care, or police protection? Mea-
suring benefits in units of happiness is surely the answer.
Even though people can’t show their values by choice,
couldn’t we equally well ask them hypothetical questions
about how much they would in principle be willing to pay