The assumption would underestimate the returns to university education if earnings
differentials do widen over time, as the evidence from the United suggests is
currently happening.
Where cross-sectional data are unavailable, the evaluator can still attempt
to estimate the economic value of education by spot-checking what employers
currently pay people with different educational qualification. Evaluators of
the World Bank-financed Mauritius Higher Education Project took this approach; the
underlying assumption is that the gap in earnings between workers in different
education groups is the same at all ages, and that the gap remains stable over
time.
Incorporating the Value of Externalities
Unlike earnings, some out-of-school benefits from education accrue mostly
to society as a whole rather than to individuals. Economists use various terms
to refer to such benefits: public goods, spillover effects, or externalities.
One study lists 20 types of benefits associated with education, including crime
reduction, social cohesion, technological change, income distribution,
charitable giving, and possibly fertility reduction In more recent work the authors show that large social gains also accrue
via the effect of parental education on children. Ensuring that parents have a
high school education reduces the probability that their children will drop out
of school and that their daughters will bear children as unmarried teenage
mothers by 50 percent. It also reduces their children’s probability of being
economically inactive as young adults by 26 percent. Most of the social
benefits associated with education have not been quantified. Thus, given the
current state of knowledge I n the field, it may prove difficult to incorporate
these benefits in project evaluation. Summers illustrates how progress is
nonetheless possible in a practical way. He estimates the value of the
reduction in child and maternal mortality and in fertility associated with
investment in an extra year of schooling for girls by asking how much society
would have to spend to achieve the same results using other means. Summers
concludes that the benefit of giving 1,000 Pakistani girls an extra year of
education amounts to US$88,500, and that the present value of the benefits
amounts to US$42,000, compared with a cost of US$30,000 in education
Economic Evaluation of Health Projects
The same three basic techniques used to assess education projects can be used
for health projects, namely, cost-effectiveness analysis, weighted
costeffectiveness analysis , and cost-benefit analysis, in increasing order of
complexity. Cost-benefit analysis is the most difficult technique, because it
requires estimating the monetary value of benefits. Analysts should use the
simplest technique possible to address the problem at hand: cost-effectiveness
where possible and weighted cost-effectiveness and cost-benefit analysis only
where needed for intersect oral comparisons or for assessing projects with
several measurable objectives, such as gains from economic efficiency in one
component and gains in health status in another.
The Steps of Economic Analysis
For health projects, as for any other kind of project, the analyst needs to
define the objectives of the analysis and the alternatives to be evaluated. This
includes the without project alternative. For each alternative, the analyst identifies
the incremental opportunity costs of the project. These should include capital
costs, such as expenditures for plant, equipment, and training; recurrent
expenditures, including the incremental costs of administrators, doctors,
nurses, laboratory technicians, unskilled support, and other staff; and
indirect costs such as patients’ time and travel. The analyst should include an
imputed annual capital cost or rent for existing equipment and buildings whose
use will be diverted to the project. Client costs should include the
opportunity cost of travel and waiting time and out-of-pocket expenditures for
food, supplies, and travel.
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