OBJECTIVES:  The optimal cost-effectiveness threshold has been subject to much debate. In the standard model, technologies are assumed to be divisible and exhibit constant returns to scale. The threshold is plotted as a linear function through the origin of the cost-effectiveness (CE) plane. We consider the implications of departures from these assumptions, including the possibility of of technologies. METHODS: We conducted simulations using a model of a hypothetical health care system comprising three stages: allocation of an initial budget among a pool of initial technologies, consideration of a new technology, and reallocation of resources if the new technology is adopted. The optimal threshold ensures that new technologies are adopted only if the net incremental benefit of adoption and reallocation is positive. Three scenarios were considered: divisible technologies exhibiting constant returns; divisible technologies exhibiting diminishing returns; and non-divisible technologies. For each scenario we estimated the optimal thresholds for net investments and net disinvestments across a range of possible budget impacts and different initial budgets. RESULTS:  The standard exposition of the threshold holds if: (a) technologies are divisible and exhibit constant returns to scale; (b) one technology remains partially adopted following initial allocation; and (c) the budget impact of each new technology is sufficiently small that reallocation involves expanding or contracting only the partially adopted technology. In all other cases, the threshold depends upon whether the new technology is a net investment or net disinvestment and the magnitude of the budget impact. The threshold curve is a piecewise linear function under divisibility and constant returns, a concave function under divisibility and diminishing returns, or a step function under non-divisibility. CONCLUSIONS:  The standard exposition of the threshold is a special case that holds only under specific conditions. Under other conditions, threshold curves take a different functional form that reduces the scope for new technologies to appear cost-effective.