Cost-benefit analysis offers standard yardsticks for assessing value-for-money from development investment. But its use in connection with upgrading education systems in developing countries has attracted controversy. It has much to commend it and is widely preferred over other assessment techniques. Yet some critics regard the assumptions it makes as oppressively rigid and are uneasy about practical problems of applying balance-sheet values to situations that have complex human dimensions. Could a modified version of cost-benefit analysis avoid such snags?

Cost-benefit analysis (CBA) enables quantitative judgements on value-for-money to be arrived at in various ways. In an educational context, CBA usually refers to rate-of-return analysis in which people are treated as human capital and the rate of return to investment in education is assessed in terms of value-added benefits from education, quantified by means of age-earnings profiles. Rate of return figures show whether investing in a particular course of action is a good idea or not. But it will not help determine how much to invest. In addition to such practical shortcomings, applying CBA to educational processes gives rise to awkward conceptual and computational questions. These are itemised in a much-quoted 1993 Loughborough University study, recently reprinted by DFID, as:

• How valid is it to assume that differences in wages accurately reflect differences in productivity?
• How can opportunity costs and non-monetary employment benefits be incorporated into CBA?
• How can factors outside education and the non-economic benefits of education be accounted for?
• How can time-series data be made available?
• How can the costs and benefits of educational investment be discounted over time?
• How can the probability of unemployment be accounted for?

The researcher reviewed previously published studies comparing rates-of-return analysis across developing countries. Based on this review, rates of return on investment were found in general to be:

• higher for primary education than for secondary education
• higher for secondary education than for tertiary education
• higher for general curricula than for vocational education.

Despite raising conceptual and practical problems, educational CBA is widely preferred over the main alternative techniques, viz. manpower planning or a social demand approach. Even so, recent concern has focused on the failure of CBA to distinguish between different groups in society in terms of different benefits they gain from education, and its preoccupation with quantity before quality of educational outcomes. More 'education-friendly' modifications proposed in the study report are:

• Link CBA more closely to cost-effectiveness analysis, to compare alternative uses of resources.
• Relate CBA to future manpower needs and future scenarios of private sector demand for skills.
• Incorporate students' own perceptions of benefits and costs into the analysis.

Source(s):
Educational Cost-Benefit Analysis, ODA Education Research Paper No. 2, J.R. Hough (1993), reprinted by DFID (1998) >

Funded by: Education Division, Department for International Development (DFID), UK (1992-1993)

id21 Research Highlight: 1998-May-26

Further Information:
J. R. Hough
C/o Loughborough University

Tel: +44 (0) 1509 261 021
Fax: +44 (0) 1509 261 021
Contact the contributor: J.R.Hough@Lboro.ac.uk

Loughborough University of Technology (LUT), UK

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