The subject of this thesis is an economic assessment of the alternative means of treating end-stage renal disease. More specifically, an answer to the following question is being sought: "which of the alternative methods of treating end-stage renal disease (home dialysis, hospital dialysis, transplantation from cadaver or living donors) maximises the difference between social benefits and social costs?” The technique of cost-benefit analysis is employed to answer this question.
Chapter 1 demonstrates that cost-benefit analysis is a technique that, although first used by engineers, finds its justification in the theory of welfare economics. Emphasis is placed on the assumptions of fact and value that underlie the technique. The theoretical bases of Chapters 7 and 8 are to be found in Chapter 1.
Chapter 2 considers the question of the appropriate rate of discount to be used in evaluating investment projects in the public sector. It is shown that when capital markets are perfect the rates of time preference and opportunity cost coincide. When imperfections in the capital market are introduced time preference and opportunity cost rates "drift apart". Thus a choice has to be made. An evaluation of these alternative concepts is made and the conclusion is reached that the notion of opportunity cost should over-ride time preference concepts in determining the "right" rate of discount. It is argued in Appendix 6 that Rawls, in his recent book "A Theory of Justice", provides no case for changing the conclusion of Chapter 2.
In Chapter 3 the analytical framework developed in Chapter 2 is employed to consider the question of the specific investment criterion to be invoked in the empirical analysis of the thesis. It is shown that the internal rate of return and net present value rules give equivalent answers with perfect capital markets, This simple situation becomes complex when imperfections in capital markets are introduced, It is concluded that the net present value rate will be employed in the empirical analysis.
A description of the four alternative methods of treating end-stage renal disease is given in Chapter 4.
Chapter 5 develops estimates of benefits for the four alternatives. Building on the cohort analyses of Appendices 1-4, benefit streams are defined as labor income plus the value of household production. Benefits are referred to as "the value of livelihood" as opposed to lithe value of life". The latter term connotes more than is being measured in this economic study. Upper and lower estimates of the "value of livelihood" are specified because of a problem in the measurement of labor income. This problem arises because of the existence of unincorporated income.
Chapter 6 presents estimates of the costs of achieving the results measured in Chapter 5.
In Chapter 7 the results of the previous tw6 chapters are brought together and net benefit streams are obtained. The net benefit streams of the alternatives are discounted at a range of discount rates into net present values. Both dialysis alternatives are found to be non-viable economic propositions at all discount rates. Transplantation from living donors has a higher net present value than cadaver transplantation at all discount rates. Both transplantation alternatives have positive net present values at a rate of discount of 10%, the rate that was considered appropriate in Chapter 2.
The results of Chapter 7 are re-worked in Chapter 8. It had been argued in Chapter 1 that of all the methods proposed to integrate efficiency and equity in a cost-benefit analysis, the weighting of benefits and costs for differing marginal utilities of income was subject to least criticism. Such a procedure involves a different assumption of fact whereas other methods involved a value judgement additional to those necessary for a "conventional" cost-benefit analysis based on the Kaldor-Hicks test. Marginal utility weights for different income groups were derived from the implicit values of marginal utility in the Australian income tax system. It was found that this procedure did not alter the rankings nor the economic viability of the four alternatives as described in Chapter 7.
In Chapter 9 consideration is given to the legal status of transplantation from cadaver and living donors. It is shown that the law relating to organ donation is restrictive on the transplantation technique. It is proposed that the law be changed in such a way to give living donor transplantation an unambiguous legal position, to institute a system of "contracting out" for cadaver donation and to define death using the criterion of irreversible coma. An estimate of the increased net economic benefits that will accrue if the law is changed is then presented for both transplantation alternatives.