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