COST EFFECTIVENESS ANALYSIS

Transcription

1 A Joint IRC and 3ie Webinar for Interaction February 5, 2014 COST EFFECTIVENESS ANALYSIS

2 Outline What is cost-benefit analysis (CBA)? Why use it? Understanding CBA conceptually The importance of impact evaluation to CBA What is cost-effectiveness analysis? Calculating the cost An example Some resources for CBA and CEA

3 What is it? Cost benefit analysis is a decision making tool. What is the best way to achieve the desired outcomes where best includes a consideration of cost.

4 Two types of CBA Ex ante CBA: forecasts conducted prior to policy or program implementation to make specific allocation decisions. Should we do it? Ex post CBA: analysis of actual costs and observed outcomes at the end of a project.

5 Who uses CBA? US government World Bank USAID One essential tool in this effort [USAID Forward] is Cost Benefit Analysis (CBA). CBA can help USAID reach its reform goals in several ways, including: analyzing the design of a project so that it meets the needs of beneficiaries, figuring out the best way to work with other donors and the private sector, and identifying improvements to existing programs. CBA does this by estimating all of the expected costs of implementing a project and comparing them to the benefits of the project.

6 Ex post CBA The value of such analyses is broader and less immediate as they provide information not only about the particular intervention but also about the class of such interventions. In other words, such analyses contribute to learning by government managers, politicians, and academics about whether particular classes or types of projects are worthwhile Cost-benefit Analysis Boardman, et. al. 1996

7 Economics foundation

8 Market equilibrium MC MB

9 What if no market? There is no market when there are externalities. In those cases, governments (or others) often choose to provide the goods and services. We do development work because governments and other donors think the social benefit is worth the cost. But those funders still want to make optimal resource decisions in the production of development goods and services.

10 Social equilibrium Marginal social cost Marginal social benefit

11 Marginal social benefit We get the social part by deciding what outcomes to measure and how to measure them. We get the marginal part using impact evaluation. IMPACT EVALUATION

12 Why impact evaluation? Impact evaluation measures the net impact attributable to a particular intervention by comparing the intervention outcome to a valid counterfactual. The counterfactual can be constructed experimentally or statistically.

13 What about the benefit? In a cost-benefit analysis, all costs and benefits financial and social are monetized. This monetization often requires some pretty heroic assumptions. When we are not feeling so heroic, we use cost effectiveness analysis. Unable to monetize Unable to capture all social benefits

14 Cost effectiveness analysis CEA compares alternatives on the basis of their costs and a single quantified but not monetized effectiveness measure. Still need to quantify Can do cost effectiveness C/E Or effectiveness per cost E/C For cost effectiveness, you rank order from lowest to highest. For effectiveness per cost, you rank order from highest to lowest.

15 Effectiveness per cost ranking J-PAL Policy Bulletin March 2012, p. 6.

16 Cost effectiveness ranking What is the cost of each additional circumcision?

17 What about the cost? Moving from CBA to CEA simplifies the benefit side. The cost side should be easier to quantify and monetize, but it is still rarely done. Why not? Not always so easy People not doing it yet

18 Calculating the cost Not just project costs, but Project costs at scale Plus the costs of other inputs or contributions Plus social costs, or negative externalities AND who pays the costs

19 Technical issues Important to understand how many and who need to be treated in order to achieve the measured outcome. E.g., it is not how much attendance increased for students who increased their attendance, but the average increase across all program beneficiaries. E.g., the marginal effectiveness of the program may decrease (or increase) with scale up or with time.

20 Example from Indonesia Targeting the Ultra Poor: Evidence from a Field Experiment in Indonesia By Vivi Alatas, Abhijit Banerjee, Rema Hanna, Ben Olken, Matt Wai-poi, and Ririn Purnamasari 3ie Grantee Final Report, July 2013

21 Program design Community-based cash transfer targeting (Indonesia)

22 3 options for targeting Proxy means testing (PMT) Self targeting Community targeting

23 Two types of outcomes Objective effectiveness Accuracy Change in consumption Satisfaction Perceived effectiveness Acceptability

24 Results Self targeting more accurate than PMT more accurate than community targeting Community targeting more satisfactory than PMT more satisfactory than self targeting

25 Costs The researchers considered administrative costs (program costs) and costs to households (travel, waiting, attending meetings, completing surveys at household average wage rate) Administrative costs calculated for the project and at scale Household costs for beneficiaries and nonbeneficiaries

26 Cost effectiveness components

27 Cost effectiveness Accuracy ranking 1. Self-targeting 2. PMT 3. Community targeting Satisfaction 1. Community targeting 2. PMT 3. Self-targeting Least cost 1. Community targeting 2. Self-targeting 3. PMT Least cost households 1. PMT 2. Community 3. Self-targeting

28 Resources ION/Resources/Tool3-Chap5.pdf n/cost-effectiveness /mcewan/pdf/cea.pdf kingpapers/working_paper_no_2005_1.s wf

29 THANK YOU!