The absolute number of dementia cases is likely to increase due to the impending demographic changes. Several cost-of-illness studies of Alzheimer's disease, mainly from a societal perspective in developed countries, have demonstrated a huge economic burden. A substantial component of this huge economic burden is the direct costs of institutionalization and the indirect cost incurred by informal carers. This huge economic burden is of great interest because of the emergence of several cholinesterase inhibitors with proven efficacy in the treatment of Alzheimer's disease. Several cost-effectiveness studies of these drugs, based mainly on Markov modelling techniques and using data from population-based epidemiological studies and efficacy trials, have indicated that these drugs are cost-effective. A theoretical delay in placement into a residential or a nursing home and consequent cost savings may explain this cost-effectiveness. In the UK, although health authorities would fund the prescription of these drugs, social services would benefit from the cost savings; thus there is little financial incentive for health authorities to fund these drugs.