11_04_2003 Economics

Cost-Benefit Analysis.

Ex: Human capital

• cost of school
• vs benefit
• list costs and benefits
• value them
• discount to present value and compare

Complications when looking at programs

• many actors – whose cost and benefit?
• Ex: externalities = effects on other people
• Distribution – who gets the benefits?
• Lots of different benefits.

Three different methods under general Cost-Benefit when looking at programs

1. Cost Benefit: Put all benefits in dollars
2. Cost Utility: Put the benefits in happiness terms
3. Cost-effectiveness: One outcome, measure it in units.
• Often used in education if any cost approach is used.
• One reason we don't cost things out much is that we don't have effective ways of measuring the outcomes

People forget to charge people's time as part of the costs.

Strong correlations with program. Take variables and try to put values on them:

Project it out, then "discount it back"

Costing out rape and arson…guesstimates of "victim costs"

Potential lifetime earnings

Criminal justice system costs

Differences between Perry preschool program and Head Start – if you're going to look at all these great benefits, you need to see just what they did that was so effective.

One of the lessons is not worrying so much about getting all the details (Xeroxing costs vs pencils costs) so much as identifying the main things – how do you value time, what are the main outcomes you're looking at, etc., facilities costs.

Politics of random assignment difficult – assigning kids to less experienced teachers will have parents up in arms.

Much fewer ethical issues on something like "success for all" since you don't know for sure that one group will be doing better, or have more resources, etc.