The pursuit of efficiency in the healthcare sector requires priority to be given to those treatments which provide the greatest benefit per unit of cost. Alternative interventions often have to be compared to determine whether a change in the mix of interventions would increase efficiency. Although economic evaluations approach costs in a common format, they differ in the way they approach benefits. These differences play a critical role in developing criteria for efficiency. 1

Cost benefit analysis involves measuring costs and benefits in commensurate terms, usually monetary. Welfare economics shows that under certain conditions any net excess of monetary benefits over costs represents the gain in welfare by society. 1 Cost benefit analysis makes it possible to determine, firstly, whether an individual intervention offers an overall net welfare gain and, secondly, how the welfare gain from that intervention compares with that from alternative interventions. Increased use of interventions with the greatest net gain will increase efficiency. By valuing all costs and benefits in the same units, cost benefit analysis compares diverse interventions using the net benefit criterion. Cost benefit analysis thus simultaneously addresses issues of productive and allocative efficiency.