On the Welfare Economic Foundations of Health Status Measures

Measures of health status, such as e.g. the QALY (Quality Adjusted Life Years) measure, have been proposed as a tool in the economic assessment of new medical technologies, and its possible foundations in individual utility theory have been discussed in the literature. However, the problems of aggregation or interpersonal utility comparison inherent in the application of such measures has went largely unnoticed. In the present work, we consider a general equilibrium model of a society, where different aspects of health are identified as Lancasterian characteristics. In this model, we consider the welfare theoretical basis for evaluation of changes of allocation from a Pareto optimum, and in particular, we investigate conditions on the economy under which the individuals will have the same marginal rates of substitution between characteristics, which is a precondition for a meaningful measurement of health status. It turns out that this equality will obtain only under very restrictive conditions of separability in characteristics production.