TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION INVESTMENTS

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TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION
INVESTMENTS

• EDUARDO VELEZ
• AFTH1
• December 1998

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THREE MESSAGES

• I. ECONOMIC ANALYSIS IS IMPORTANT IN EDUCATION
• II. ECONOMIC ANALYSIS IS POSSIBLE IN EDUCATION
• III. EXPAND EXPECTATIONS SLOWLY, CAREFULLY

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I. ECONOMIC ANALYSIS IS IMPORTANT IN EDUCATION

• Economic analysis is a tool to analyze best
  investments from an economic point of view
• Necessary (convenient) for sector analysis and
  for project design
• Provides a set of information. Education
  indicators are another set.
• It helps answer the following questions
• A. In which education sub-sector should one
  invest?
• B. What kind of investment in each sub-sector?
• C. Are the planned investments sustainable?
• D. What are the equity implications?

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A. In which education sub-sector should one
invest?

• The first decision concerns the educational level
  where it makes most sense to invest.
  Intra-sectoral but also inter-sectoral
  allocations
• This decision should usually be made prior to
  project identification, when the overall country
  assistance strategy is defined and specific
  priorities are set for the education sector
  within that context.
• Instruments
• CAS (coverage, quality, efficiency, sequence of
  investment)
• Public expenditure review

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B. What kind of investment in each
sub-sector?

• There are different ways of achieving educational
  goals (identification of education inputs)
• Choosing among various alternatives implies the
  ability to measure the costs and benefits
  associated with each alternative. The cost side
  is the easier part insofar as the various inputs
  financed by the project have a direct monetary
  cost (and the indirect cost reflecting the
  opportunity cost linked to foregone incomes). At
  the very least, each project should include a
  table comparing various alternative approaches in
  terms of unit cost of each intervention and
  number of beneficiaries.

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C. Are the planned investments sustainable?

• A key element of the economic analysis is to
  assess whether the investment planned is
  sustainable during and beyond the project life.
  The purpose of the sustainability analysis is to
  measure the financial implications of the project
  in order to identify potential financing gaps and
  avoid financing shortfalls.
• Not only look at the financing capacity of public
  sector. Education investments may also generate
  private economic benefits that could create a
  willingness to pay among potential
  beneficiaries. As a result, the analysis should
  also look at generation of private economic
  benefits that could create willingness to pay and
  ability to pay.

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D. What are the equity implications?

• Another dimension of the economic analysis is to
  check the consistency of the proposed investment
  with the Banks poverty reduction strategy in the
  country. What groups would benefit (gender,
  ethnic, regions, income, etc.)?

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II. ECONOMIC ANALYSIS IS POSSIBLE
IN EDUCATION Tools of Economic
Analysis

• Cost-effectiveness (ce) analysis refers to the
  evaluation of alternatives according to both
  their costs and their effects with regard to
  producing some outcome or set of outcomes.
• Cost-benefit (cb) analysis refers to the
  evaluation of alternatives according to a
  comparison of both their costs and benefits when
  each is measured in monetary terms.

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II. ECONOMIC ANALYSIS IS POSSIBLE
IN EDUCATION Tools of Economic
Analysis (Cont...)

• Cost-utility (cu) analysis refers to the
  evaluation of alternatives according to a
  comparison of their costs and the estimated
  utility or value of their outcomes.
• Cost-feasibility (cf) analysis refers to the
  method of estimating only the costs of an
  alternative in order to ascertain whether or not
  it can be considered.

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate
• Employment of graduates No. of graduates placed
  in appropriate jobs

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate
• Employment of graduates No. of graduates placed
  in appropriate jobs
• Student learning Test scores in appropriate
  domains
• utilizing appropriate test instruments

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate
• Employment of graduates No. of graduates placed
  in appropriate jobs
• Student learning Test scores in appropriate
  domains
• utilizing appropriate test instruments
• Student satisfaction Student assessment of
  program on
• appropriate instrument to measure
• satisfaction

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate
• Employment of graduates No. of graduates placed
  in appropriate jobs
• Student learning Test scores in appropriate
  domains
• utilizing appropriate test instruments
• Student satisfaction Student assessment of
  program on
• appropriate instrument to measure
• satisfaction
• Physical performance Evaluation of student
  physical
• condition and physical skills

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COST-EFFECTIVENESS (CE) ANALYSISExamples of
Effectiveness Measures

• PROGRAM OBJECTIVES MEASURE OF
  EFFECTIVENESS
• Program completions No. of students completing
  program
• Reducing dropouts No. of potential dropouts who
  graduate
• Employment of graduates No. of graduates placed
  in appropriate jobs
• Student learning Test scores in appropriate
  domains
• utilizing appropriate test instruments
• Student satisfaction Student assessment of
  program on
• appropriate instrument to measure
• satisfaction
• Physical performance Evaluation of student
  physical
• condition and physical skills
• College placement No. of students placed in
  particular
• colleges

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COST-EFFECTIVENESS (CE) ANALYSISHypothetical
Cost-Effectiveness Result for Remedial Science
Programs

• Method
• Small groups
• Special tutors
• CAI
• Additional hrs

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COST-EFFECTIVENESS (CE) ANALYSISHypothetical
Cost-Effectiveness Result for Remedial Science
Programs
Cost per student (US) 600
200 300 100
Method Small groups Special tutors CAI Additiona
l hrs
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COST-EFFECTIVENESS (CE) ANALYSISHypothetical
Cost-Effectiveness Result for Remedial Science
Programs
Cost per student (US) 600
200 300 100
Effectiveness (test score) 40
8 30 20
Method Small groups Special tutors CAI Additiona
l hrs
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COST-EFFECTIVENESS (CE) ANALYSISHypothetical
Cost-Effectiveness Result for Remedial Science
Programs

• Method
• Small groups
• Special tutors
• CAI
• Additional hrs

Cost per student (US) 600
200 300 100
Effectiveness (test score) 40
8 30 20
Cost- Effectiveness Ratio 15 25
10 5
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COST-EFFECTIVENESS (CE) ANALYSISCost-effectivenes
s of Inputs for Portuguese Achievement

• The least-cost method to produce an additional
  output. Three steps are required
• 1. Regression coefficients from an education
  production function are used as estimates
  of the marginal achievement gains attributable to
  different inputs
• 2. The total economic costs per student of each
  individual input are calculated.
• 3. Alternative inputs are ranked in terms of
  their contribution to improving scores relative
  to their costs.

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COST-EFFECTIVENESS (CE) ANALYSISCost-effectivenes
s of Inputs for Portuguese Achievement

• Input
• Water
• School furniture
• School facilities
• Hardware
• Textbook usage
• Writing materials
• Software
• Teacher salary
• Training
• Logos II
• 4 year primary
• 3 years secondary

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COST-EFFECTIVENESS (CE) ANALYSISCost-effectivenes
s of Inputs for Portuguese Achievement

• Input
• Water
• School furniture
• School facilities
• Hardware
• Textbook usage
• Writing materials
• Software
• Teacher salary
• Training
• Logos II
• 4 year primary
• 3 years secondary

Cost (US) 1.81 5.45 8.80
16.06 1.65 1.76 3.41 0.39 2.50 1.84 2.21 5
.55
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COST-EFFECTIVENESS (CE) ANALYSISCost-effectivenes
s of Inputs for Portuguese Achievement
Achievement change by input (coefficients) 3.
513 -5.650 7.228 8.969 6.403 4.70
3 4.864 0.055 -0.160 3.594 3
.177 2.383

• Input
• Water
• School furniture
• School facilities
• Hardware
• Textbook usage
• Writing materials
• Software
• Teacher salary
• Training
• Logos II
• 4 year primary
• 3 years secondary

Cost (US) 1.81 5.45 8.80
16.06 1.65 1.76 3.41 0.39 2.50 1.84 2.21 5
.55
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COST-EFFECTIVENESS (CE) ANALYSISCost-effectivenes
s of Inputs for Portuguese Achievement
Achievement change by input (coefficients) 3.
513 -5.650 7.228 8.969 6.403 4.70
3 4.864 0.055 -0.160 3.594 3
.177 2.383
Achievement gains per US spent 1.94 - 0.82 0.56
3.88 2.67 1.43 0.14 - 1.95 1.44 0.43

• Input
• Water
• School furniture
• School facilities
• Hardware
• Textbook usage
• Writing materials
• Software
• Teacher salary
• Training
• Logos II
• 4 year primary
• 3 years secondary

Cost (US) 1.81 5.45 8.80
16.06 1.65 1.76 3.41 0.39 2.50 1.84 2.21 5
.55
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3. EXPAND EXPECTATIONS SLOWLY, CAREFULLY

• Examples from World Bank at IEPS stage
• What is rational for public investment?
• What is best investment for intervention
• At appraisal
• What is fiscal impact?
• Can we measure benefits?

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Rate of return and Net Present Value of School
Amalgamation Options in Barbados
Option
1. Retain the existing schools as they are
(reference option)
2. Replace the existing schools with a new
one
3. Build new school for grades 3-6 and
retain one existing school for grades K-2
4. Expand one of the existing schools to
accommodate all the students
5. Upgrade the existing schools, using one
for grades 3-6, and the other for grades K-2
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Rate of return and Net Present Value of School
Amalgamation Options in Barbados
Rate of return (percent a year)
Option
1. Retain the existing schools as they are
(reference option)
--
2. Replace the existing schools with a new
one
13.5
3. Build new school for grades 3-6 and
retain one existing school for grades K-2
11.5
4. Expand one of the existing schools to
accommodate all the students
49.5
5. Upgrade the existing schools, using one
for grades 3-6, and the other for grades K-2
70.0
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Rate of return and Net Present Value of School
Amalgamation Options in Barbados
Rate of return (percent a year)
Net present value ()
Option
1. Retain the existing schools as they are
(reference option)
--
--
2. Replace the existing schools with a new
one
13.5
196,700
3. Build new school for grades 3-6 and
retain one existing school for grades K-2
11.5
65,500
4. Expand one of the existing schools to
accommodate all the students
49.5
690,800
5. Upgrade the existing schools, using one
for grades 3-6, and the other for grades K-2
70.0
532,200
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Economic Analysis of Project Component to Support
the University of Mauritius
(thousands of Mauritius rupees at 1994 prices)
Year
Capital Exp.
Inc. Rec. Costs
Opp. Costs
Benefits
Net Benefits
0
-7,500
1995
3,900
0
3,600
140,685
-208,718
1996
85,428
5,073
22,468
1997
164,898
-201,282
92,106
8,500
64,223
1998
181,076
-193,657
122,994
8,648
119,061
211,764
-114,847
1999
77,958
11,117
185,993
231,729
-49,814
2000
62,226
12,601
256,742
252,314
95,226
2001
12,774
360,314
272,446
185,047
2002
12,820
470,313
297,336
273,091
2003
12,271
582,698
322,332
386,189
2004- 2015
12,244
720,765
IRR21.0
NPV885,202