Page 175 - DEDU503_EDUCATIONAL_MANAGEMENT_ENGLISH

Unit 14: Cost–Benefit and Cost–Efficiency Analysis in Education

round one basic issue : the relationship between the costs and the benefits of education, viewed as Notes
a form of social or private investment. This booklet is concerned with the theory and techniques of
cost-benefit analysis as applied to education and with the relevance of cost-benefit analysis for
educational planning.
It is written from the point of view of educational planners and administrators in developing countries
and its emphasis is fundamentally practical. It is, of course, necessary to give a brief summary of the
economic theory underlying the concepts and techniques of cost-benefit analysis and to examine
some of the theoretical objections that have been made to applications of cost-benefit analysis to
education. But theoretical reviews of cost-benefit analysis are available elsewhere. The purpose of
this booklet is to examine the practical significance of cost-benefit analysis for educational planning
and to provide a simple explanation of the technique for non-economists who are faced with economic
problems of resource allocation. A major part of the booklet will be devoted to the practical problems
of collecting and analyzing the data necessary for a cost-benefit calculation. Real examples will be
given of cost-benefit exercises in developing countries. The booklet concludes with a discussion of
the policy implications of cost-benefit analysis of education.
Since the 1960s, following influential work by economists such as Schultz (1961) and Becker (1964)
described by another American economist as “The human investment revolution in economic
thought” (Bowman, 1966), an extensive body of research has developed which applies cost-benefit
analysis to the whole field of investment in human capital : education, on-the-job training and
health expenditures, to give the most obvious examples. An immediate problem arises here. The
future benefits from such investment include non-economic benefits and even the economic benefits
are difficult to quantify.

As cost-benefit analysis is an economist’s tool designed to provide an economic appraisal
of an investment possibility, applications of cost-benefit analysis to education focus
strongly on the economic benefits of education.

14.3 Meaning of Cost Efficiency Analysis

The words ‘cost of education’ are often loosely equated with ‘expenditure on education’. For the
purposes of cost-benefit analysis of an investment, however, it is necessary to define costs in terms
of the total opportunity cost of a project; that is, all real resources that are used by the project. These
are called the ‘opportunity cost’ as each investment represents the sacrifice of alternative opportunities
to use the resources, either for present consumption or for some other form of investment. Thus
money expenditures are significant only because they represent the purchase of teachers’ labour,
school buildings and equipment or other goods and services that have alternative uses. At the same
time the education system uses up other resources with alternative uses, even though these are not
reflected in normal expenditure on education. The most obvious example is the time of pupils and
students themselves, who deprive the labour market of their services by choosing to continue their
education. This represents a loss of productive capacity and thus a loss of current output for the
economy as a whole as well as a loss of earnings for the individual. This opportunity of current
output or income is foregone in the expectation that education will increase the productive capacity
of students in the future and hence future output. However, this loss of present income must be
counted as one of the opportunity costs of education as it does represent a sacrifice of real resources,
even though the time of students is not reflected in actual expenditure and thus appears at first sight
to be a ‘free’ good. Similarly, other apparently ‘free’ goods or services used in the educational
process do, in fact, represent a sacrifice of alternative opportunities. In developing countries, for
example, the land and even the buildings for a school may be donated by the local community.

LOVELY PROFESSIONAL UNIVERSITY 169