Cost Utility and Cost Effectiveness Analysis

Cost Effectiveness analysis looks at economic decision making to weigh up the costs and effects of a particular economic action. It is a way to measure the costs and the benefits from a decision. In a way it is similar to cost benefit analysis. However, cost effectiveness analysis doesn’t necessarily have to categorize all the benefits into a  monetary value. (Although it should be a single measure) For example, this may look at various methods of reducing pollution. It would compare the costs and see how much pollution can be reduced by. Cost effectiveness analysis could also be used for deciding which method of electricity generation to use.

Cost Utility Analsyis 

Cost Utility Analysis involves looking at whether an action should be undertaken. In particular, it looks at the cost of the action compared to the increase in utility. In health economics this is particular with regard to life expectancy

For example, cost utility analysis may be used in health care to decide whether someone should be treated.

The cost of treating someone with a rare cancer may be £400,000. If this leads to an increase in life expectancy of 1 year. We can say the cost utility of this treatment is £400,000 per year.

Quality Adjusted Life Years 

(Note, the benefit does not have to be explained in monetary terms. Health care often use QALYs. (Quality Adjusted Life Years)

Note, there is a strong overlap between cost effectiveness and cost utility analysis, cost utility analysis is usually referred to as a specific case relating to health care and life expectancy.