Elsevier

Social Science & Medicine

Volume 60, Issue 2, January 2005, Pages 265-275
Social Science & Medicine

Empiricism, ethics and orthodox economic theory: what is the appropriate basis for decision-making in the health sector?

https://doi.org/10.1016/j.socscimed.2004.04.034Get rights and content

Abstract

Economics is commonly defined in terms of the relationship between people's unlimited wants and society's scarce resources. The definition implies a central role for an understanding of what people want, i.e. their objectives. This, in turn, suggests an important role for both empirical research into people's objectives and debate about the acceptability of the objectives. In contrast with this expectation, economics has avoided these issues by the adoption of an orthodoxy that imposes objectives. However evidence suggests, at least in the health sector, that people do not have the simple objectives assumed by economic theory. Amartya Sen has advocated a shift from a focus on “utility” to a focus on “capabilities” and “functionings” as a way of overcoming the shortcomings of welfarism. However, the practicality of Sen's account is threatened by the range of possible “functionings”, by the lack of guidance about how they should be weighted, and by suspicions that they do not capture the full range of objectives people appear to value. We argue that “empirical ethics”, an emerging approach in the health sector, provides important lessons on overcoming these problems. Moreover, it is an ethically defensible methodology, and yields practical results that can assist policy makers in the allocation of resources.

Introduction

The great economists of the past typically commenced with an observed problem and adopted a set of assumptions suitable for its analysis and solution. Adam Smith sought to explain how unregulated markets could increase income and material wealth. Ricardo sought to explain the redistribution of income. Alfred Marshall sought to explain the efficiency of markets while Karl Marx focused upon the apparent exploitation of the workforce. Keynesianism grew out of the observed unemployment of the great depression, while Keynes's contemporary, Schumpeter, proposed an explanation for the observed dynamism of capitalist economies. More recently, monetarists, post-Keynesian and new classical economists have sought to explain the simultaneous existence of inflation and unemployment. Importantly, the relevance of the theories for the real world was self-evident. They were aimed at the understanding, and possibly the solution, of observed problems.

In contrast, in the last two decades there have been a succession of publications arguing that the preoccupation of modern economics with formal technique—formalism—and the lack of emphasis upon empirical problem-solving and empirical testing has led to a decline in the relevance of theoretical economics. The culmination of this concern throughout the 1980s was an enquiry into graduate education in the USA which, in large part, endorsed these concerns (Report of the Commission on Graduate Education in Economics, 1991). According to Blaug (1998, p. 13): “If we can date the onset of the illness at all, it is the publication in 1954 of the famous paper by Nobel Laureates, Kenneth Arrow and Gerald Debreu. This paper marks the beginning of what has since become a cancerous growth in the very center of micro economics”. Blaug's argument is that Arrow and Debreu's paper became a model for what economics ought to be. He continues that the approach was “then canonized by Debreu in his history of value five years later, probably the most arid and pointless book in the entire literature of economics” (Blaug, 1998, p. 17). None would doubt the intellectual brilliance of the Nobel winning contribution of Arrow and Debreu. It may, however, have been an illustration of Popper's (1949) recurring theme “that great men make great mistakes” and that, therefore, their contributions should be subject to the greatest possible criticism.

The tendency to formalism should not, of course, be overstated. As argued by Solow (1997), “the past fifty years have, indeed, seen formalistic economics grow and prosper…(but) only a small minority within the profession practices economic theory in this style…generally speaking, formalists write for one another” (p. 43). In support of this, the majority of applied economists practice a form of robust and eclectic empiricism. Despite this caveat there is a strong “rationalist” tradition in economics. Analyses commence with axioms, and conclusions are drawn, often in the form of mathematical proofs, with minimal reference to empirical testing. The important qualification that the axioms may not be universally applicable, or that context-specific constraints may need to be imposed, is sometimes noted but typically ignored. The emphasis is on consistency, elegance, mathematical rigour, and other internal properties of theory construction, with empirical adequacy being given secondary consideration.1

One of the legacies of formalism, and the subject matter of this article, is the way in which the assumptions of orthodox theory have censored social objectives. We argue that in the health sector economists have not explored a wide range of plausible social objectives that are inconsistent with the presuppositions of formal economic theory. We suggest that the reason for this is not simply that economists have adopted the wrong set of assumptions. Rather, the problem is with the “rationalist” methodology that sanctions the adoption and defense of axioms and assumptions without satisfactory reference to empirical evidence from the relevant context which, in the present case, is the health sector. The consequence is the neglect of theories that may better characterise the social objectives. These include a number of models loosely grouped under the heading of “extra-welfarism” and include the influential work of Amartya Sen.

In the following section, we briefly discuss the assumptions of orthodox welfare theory, concentrating, in particular, on welfarism, individualism, and consequentialism, assumptions that constrain the range of objectives that may be included in economic analyses. In the third section, we examine Sen's critique of welfare economics and the alternative framework he offers. We conclude that while Sen's criticisms are persuasive, his alternative framework confronts unresolved problems of implementation, particularly in the health sector. In the fourth section, we discuss some health-related objectives that appear consistent with public values but which have been largely ignored by economists: the severity of the patient's initial health state (as distinct from the improvement achieved by an intervention); the patient's capacity to improve their health state (non-discrimination against the permanently disabled); the patient's age; the reluctance to discriminate against those with high-cost illnesses; and explicit support for government paternalism. In the fifth section, we consider an alternative analytical framework for approaching this class of problems, which we have labelled “empirical ethics” (Richardson, 2002b).

Section snippets

Orthodox welfare economics

Welfarism is the view that social welfare is a function of personal utilities (irrespective of the non-utility features of these states). Consistent with this, traditional welfare economics places prime importance upon the preferences we have about our own lives—our “self-regarding” preferences—and places correspondingly less significance on the preferences we have about other people's lives—our “other-regarding” preferences.2

Extra-welfarism and capacity

The failure of orthodox welfarism in one or more contexts implies the need for a (possibly context-specific) alternative theory of social welfare and, in recognition of this, “extra-welfarism” has been proposed to describe and prescribe values and policies in the health sector. The term was first discussed in health economics by Culyer (1989). However, as discussed by Hurley (1998, pp. 378–379), Culyer's (1989, p. 55) use of the term is somewhat ambiguous, even after his own clarifying note.

Severity

In conventional cost-utility analysis (CUA), where costs are measured in monetary units and the outcome is measured in terms of unweighted QALYs, the initial health state of a patient is only of importance because health improvement depends upon the quality of life before and after treatment. However, when directly questioned and informed of the fact that individual patients find two health improvements to be of identical benefit, survey respondents generally express a strong preference for

Empirical ethics: practical lessons

The evidence of the last section was cited in support of a methodological argument. This is that there are a surprisingly large number of unsurprising responses from the public that conflict with welfarism and health maximisation, and that these issues have not been systematically investigated or even widely discussed. The primary reason, we suggest, is that in each case the unsurprising public response conflicts with economic orthodoxy and with the assumptions that are made by many or most

Discussion and conclusion

Our criticism of orthodox welfarism and its application in the health sector has been two-fold. First, a number of the assumptions of welfare theory are seriously flawed. We have concentrated on individualism, welfarism, and consequentialism. Secondly, and more fundamentally, the adoption of the rationalist methodology has seriously limited the scope and nature of the analysis of social objectives. At best the orthodox assumptions impose a limited view of the values that may be included in the

References (72)

  • E. Nord et al.

    Who cares about cost? Does economic analysis impose or reflect social value?

    Health Policy

    (1995)
  • J.A. Olsen et al.

    Production gains from health careWhat should be included in cost-effectiveness analyses?

    Social Science & Medicine

    (1999)
  • M. Osborne et al.

    Allocation of resources in intensive careA transatlantic perspective

    The Lancet

    (1994)
  • A. Tsuchiya

    Age-related preferences and age weighting health benefits

    Social Science & Medicine

    (1999)
  • P.A. Ubel et al.

    The efficacy and equity of retransplantationAn experimental survey of public attitudes

    Health Policy

    (1995)
  • J.M. Abellan-Perpinan et al.

    Health state after treatmentA reason for discrimination

    Health Economics

    (1999)
  • S. Alkire et al.

    A practical reasoning theory of development ethicsFurthering the capabilities approach

    Journal of International Development

    (1997)
  • J. Andreoni

    Cooperation in public goods experimentsKindness or confusion?

    The American Economic Review

    (1995)
  • B. Barry

    Political argument

    (1965)
  • M. Black et al.

    Equity in health care from a communitarian standpoint

    Health Care Analysis

    (2002)
  • M. Blaug

    Disturbing currents in modern economics

    Challenge

    (1998)
  • G.E. Bolton et al.

    ERCA theory of equity, reciprocity, and competition

    The American Economic Review

    (2000)
  • R. Brandt

    A theory of the good and the right

    (1979)
  • G.A. Cohen

    Equality of what? On welfare, goods, and capabilities

  • M. Creadon

    The ocean denied

    Time

    (1997)
  • A.J. Culyer

    The normative economics of health care finance and provision

    Oxford Review of Economic Policy

    (1989)
  • N. Daniels

    Symposium on the rationing of health care2 Rationing medical care a philosophers perspective on outcomes and process

    Economics and Philosophy

    (1998)
  • N. Daniels et al.

    Last chance therapies and managed carePluralism, fair procedures, and legitimacy

    Hastings Center Report

    (1998)
  • P. Dolan et al.

    Effect of discussion and deliberation on the public's views of priority setting in health careFocus group study

    British Medical Journal

    (1999)
  • R. Dworkin

    Taking rights seriously

    (1977)
  • S. Freeman

    Deliberative democracyA sympathetic comment

    Philosophy and Public Affairs

    (2000)
  • D. Gasper

    Sen's capability approach and Nussbaum's capabilities ethic

    Journal of International Development

    (1997)
  • R.E. Goodin

    Utilitarianism as a public philosophy

    (1995)
  • C. Gore

    Irreducibly social goods and the informational basis of Amartya Sen's capability approach

    Journal of International Development

    (1997)
  • D.C. Hadorn

    Setting health care priorities in OregonCost-effectiveness meets the rule of rescue

    Journal of the American Medical Association

    (1991)
  • J. Hurley

    Welfarism, extra-welfarism and evaluative economic analysis in the health sector

  • Cited by (52)

    • Budgetary Impact and Cost Drivers of Drugs for Rare and Ultrarare Diseases

      2018, Value in Health
      Citation Excerpt :

      Ultimately, this conflict can be traced back to fundamental value judgments, and for this reason, it is not necessarily clear which of the two criteria—incremental costs per patient or budgetary impact—ought to be given priority. Although standard health economic evaluations rely on a utilitarian framework, stronger emphasis on social value judgments might lead to a greater role for budget impact and social willingness to pay—an emerging paradigm that will deserve (and require) further in-depth analysis, deliberation, and empirical research [13,48–51]. In the present study, an inverse relationship between prevalence and annual treatment costs was found specifically for drugs for nononcological URDs.

    • Valuing health at the end of life: A stated preference discrete choice experiment

      2015, Social Science and Medicine
      Citation Excerpt :

      Preliminary studies, reported elsewhere (Shah et al., 2011; 2014), tested the proposed methods and found weak evidence of public support for giving priority to end-of-life patients, all else being equal. A further aim is to add to the growing literature on public preferences regarding the prioritisation of health care, which can be used to support an ‘empirical ethics’ approach to allocating health care resources (Richardson and McKie, 2005). There are many stated preference techniques that can be used to elicit public preferences regarding health care priority setting (Ryan et al., 2001).

    • On the necessity of benefit assessments across all indications

      2010, Zeitschrift fur Evidenz, Fortbildung und Qualitat im Gesundheitswesen
    View all citing articles on Scopus
    View full text