The costs of treatment of children with otitis media with effusion comprise a substantial part of the total health care expenditure. However, there is little information about the value of therapy expressed in cost-effectiveness terms, and disagreement still exists about optimal therapy. This article considers the elements of cost-effectiveness analysis as they pertain to treatment of young children with otitis media with effusion and develops a first approximation model using data from several sources. The assumptions on which this model is based need to be validated by additional research. Otitis media with effusion treatment costs are high because of the large, and apparently increasing, number of symptomatic cases. Medical therapy, which is the primary treatment modality, consumes two thirds of the expenditures for otitis media with effusion. Surgical therapy is a cost-effective treatment for children in whom medical therapy for otitis media with effusion fails. Medical and surgical therapy are complementary, and each should be included in the analysis of cost-effectiveness.