Utilitarian or Quantile-Welfare Evaluation of Social Welfare? With Application to Health Cost-Effectiveness Analysis

Abstract

This paper considers quantile-welfare evaluation of social welfare as an alternative to utilitarian evaluation. Manski (1988) originally proposed and studied maximization of quantile utility as a model of individual decision making under uncertainty, juxtaposing it with maximization of expected utility. That paper's primary motivation was to exploit the fact that maximization of quantile utility requires only an ordinal formalization of utility, not a cardinal one. This paper transfers these ideas from analysis of individual decision making to analysis of social planning. We begin by summarizing basic theoretical properties of quantile welfare in general terms. We then turn attention to health cost-effectiveness analysis and consider measurement and econometric issues arising in that context. We propose a procedure to nonparametrically bound the quantile welfare of health states using data from binary-choice time-tradeoff (TTO) experiments of the type regularly performed by health economists.