Question

Topic: Productivity cost and contingent market valuation.

Suppose the faith-based organization has three leaders:

- a 52 year old, African American male physician in private practice who also holds a PhD;

- a 29 year old Native American female lawyer also holds and MBA and who works for a large firm that specializes in medical malpractice claims; and

- a 38 year old, Caucasian male with an MA in art history who works as cook at a local restaurant. Suppose that each of them uses their free time to be a group leader at the faith- based organization. Each person spends three hours a week as a group leader.

Question: ​​​How would the Panel on Cost-Effectiveness in Health and Medicine put a value on each person’s time? Note that this is the inputs taken into consideration rather than actual amounts.

Answer 1

Value is subjective in the market according to behavioral economics. Each person values things differently according to their utility and there is also involves opportunity cost in it.

In the first case, the person is of 52 years age and holding a Ph.D. so he has experience as well as one of the highest qualification and his opportunity cost must be high so the panel would value his time as most important in the hierarchy.

The second person is younger with 29 years of age but holds an MBA degree which is again regarded as highly qualified so her time will be valued at the middle level in the process.

The 3rd person is also qualified but according to the market that qualification and job are not highly specialized and so that his time is valued at the lowest level.

The market tends to be imperfect because of knowledge asymmetry and that is why it creates some vague framework for valuation which does not yield the optimum solution always. We have valued each person according to their age and qualification or in terms of assumed skills. However, it could be possible that the 3rd person might prove most motivating and productive than the other two persons combined. That is why value tends to be subjective and hard to analyze.