Cost-effectiveness as a price control

After a technology is developed, cost-effectiveness analysis can offer an economically sound approach to adoption decisions. Little attention has been paid, however, to the incentives these criteria induce for getting technologies to market in the first place. We argue that technology adoption procedures more fully take into account the key trade-off inherent in research and development: the decreased welfare of current patients as a result of higher prices versus the increased welfare of future patients as a result of the incentives for innovation that such prices provide. Empirical evidence from a case study of HIV/AIDS provides an illustration of our conclusions.