ECONOMIC ANALYSIS OF HEALTH SECTOR PROJECTS—
              A REVIEW OF ISSUES, METHODS, AND APPROACHES
                    Ramesh Adhikari, Paul Gertler, and Anneli Lagman
                                March 1999
           Asian Development Bank
           P.O. Box 789
           0980 Manila
           Philippines
           ©1999 by Asian Development Bank
           March 1999
           ISSN 0117-0511
           The views expressed in this paper are those of
           the authors and do not necessarily reflect the
           views or policies of the Asian Development
           Bank.
                         Foreword
             The Asian Development Bank Economic Staff Paper Series presents the
          results of selected preliminary research undertaken by the Economics and
          Development Resource Center. It is designed to stimulate discussion and
          critical comment on socioeconomic issues facing the developing countries
          of the Asian and Pacific region. It is hoped that in some small way the dis-
          cussion generated by the series will increase our understanding of the
          development process in the region.
                               JUNGSOO LEE
                               Chief Economist
                        Economics and Development Resource Center
                                                                                   Contents
                      Abstract                                                                                                                vii
                              I.    Introduction                                                                                                1
                             II.    Key Issues                                                                                                  2
                                    A.     Setting Out Project Objectives                                                                       2
                                    B.     Macroeconomic and Sector Context                                                                     3
                                    C.     Justifying Public Sector Involvement                                                                 5
                           III.     Methods and Approaches                                                                                     11
                                    A.     Macroeconomic and Sector Context,
                                           and Project Economic Rationale                                                                      12
                                    B.     Demand Analysis                                                                                    12
                                    C.     Analysis of Alternative Project Designs                                                             14
                                    D.     Cost-Benefit and Cost-Effectiveness Analyses                                                       15
                                    E.     Quantification and Valuation of Costs and Benefits                                                  17
                                    F.     The Role of the Counterfactual in Measuring Net Benefits                                            21
                                    G.     Valuing Redistribution (Equity) Benefits                                                           22
                                    H. Project Sustainability Analysis                                                                         22
                                           (1)     Fiscal Impact                                                                               23
                                           (2)     Cost Recovery and Allocation of Subsidies                                                  24
                                           (3)     Risk Assessment—Institutional Capacity,
                                                   Stakeholder Analysis and Incentives                                                        24
                            IV.     Conclusions                                                                                                26
                      References                                                                                                               28
                                                                                List of Boxes
                              1     Key Steps in the Economic Analysis of Health Sector Projects                                               13
                              2     Analytical Tools for Economic Evaluation of Health Projects                                                17
                              3     Examples of Potential Benefits from Health Projects                                                       19
                              4     Examples of Measures of Performance for Health Sector Projects                                            20