The willingness to pay for health changes, the human-capital approach and the external costs

Abstract

In this paper, the relationship between willingness to pay for health changes, the human-capital approach, and the costs that should be included in a cost-benefit analysis of a health care programme are analysed. The costs that should be included are defined as the change in consumption minus the change in production of the individual that receives a health care programme. The size of these external costs differs depending on the institutional arrangements in society. It is shown that the net production version of the human-capital approach is an estimation of the external costs. The human-capital approach can thus be given a theoretical foundation in cost-benefit analysis if it is used to estimate the external costs.