Medical Technology Adoption, Uncertainty, and Irreversibilities: Is a Bird in the Hand Really Worth More than the Bush?

Graff Zivin, J and M Neidell, “Medical Technology Adoption, Uncertainty, and Irreversibilities: Is a Bird in the Hand Really Worth More than the Bush?” Health Economics, 19(2010): 142-153.

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The influence of current medical technology adoption decisions on the use of future potential interventions is often overlooked. Some health interventions, once exercised, restrict future potential interventions for both related and unrelated medical conditions. For example, treatment of a patient with an antibiotic may lead to resistance in that patient that precludes future treatment with the same or related compounds. This irreversibility raises the value of treatment modalities that preserve future treatment options. Surprisingly, partial reversibility with or without learning can either increase or decrease this value, depending on the distribution of patient types within the treated population. Evaluations that ignore these option values miss an important part of the welfare equation that is becoming increasingly important as individuals live longer and the stock of medical treatments increases.