Chapter 11: Measuring Efficiency
Download
Report
Transcript Chapter 11: Measuring Efficiency
Chapter 11:
Measuring Efficiency
Created By
Kelly Sommerfeld
Introduction to Chapter 11
What are some examples of common
resource allocation dilemmas faced by
planners, funding groups, and policymakers?
Cost-Benefit vs. CostEffectiveness
Cost - Benefit: The outcomes of programs
are expressed in monetary terms.
Cost-Effectiveness: The outcomes are
expressed in substantive terms.
Key Concepts in Efficiency
Analysis
What is the value?
What are the limitations?
Ex Ante and Ex Post Efficiency
Analyses
(1)
(2)
Most commonly undertaken:
Prospectively during the planning and
design phase of an initiative (ex ante
efficiency analysis)
Retrospectively, after a program has been in
place for a time and has been demonstrated
to be effective by an impact evaluation, and
there is interest in making the program
permanent or expanding it (ex post
efficiency analysis)
Cost-Benefit Analysis
Requires estimates of the benefits of a program and
estimates of the costs of undertaking the program.
Requires the adoption of a particular economic
perspective
Least controversial when applied to technical and
industrial projects.
Attempt to value both inputs and outputs at what is
referred to as their marginal social values.
Cost-Effectiveness Analysis
Requires monetizing only the program’s
costs.
Benefits are expressed in outcome units.
Efficiency is expressed in terms of the costs
of achieving a given result.
Conducting Cost-Benefit
Analyses
Assembling Cost Data
Sources of Cost Data:
Agency fiscal records
Target cost estimates
Cooperating agencies
Accounting Perspectives
Individual participants or targets
Program sponsors
The communal social unit involved in the program
Measuring Costs and Benefits
What are the problems?
Identifying and measuring all program costs and
benefits
Difficulty of expressing all benefits and costs in
terms of a common denominator (meaning
translating them into monetary units)
Monetizing Outcomes
Money measurements
Market valuation
Econometric estimation
Hypothetical questions
Observing political choices
In summary, all relevant components must be included
if the results of a cost-benefit analysis are to be valid
and reliable and reflect fully the economic effects of
a project.
Vocabulary To Know
Shadow Prices
Opportunity Costs
Secondary Effects
Distributional Effects
Discounting
Final Step in Cost-Benefit
Analysis
Comparing total costs to total benefits
Most direct way is by subtracting costs from
benefits after appropriate discounting
Example: Program may have costs of $185,000 and
calculated benefits of $300,000. In this case, the net benefit
is $115,000.
Conducting CostEffectiveness Analyses
Based on the same principles and uses the
same methods as a cost-benefit analysis.
Contrast though is that the analysis does not
require that benefits and costs be reduced to
a common denominator.
Programs with similar goals are evaluated
and their costs compared.
Efficiency is judged by comparing costs for
units of outcome.
Summary
Efficiency analyses: Provide a framework for
relating program costs to outcomes.
Cost-Benefit analyses: Directly compare
benefits to costs in monetary terms.
Cost-Effectiveness analyses: Relate costs
expressed in monetary terms to units of
substantive results achieved.
Resource
Rossi, Peter H., Lipsey, Mark W., Freeman,
Howard E. (2004). Evaluation: A
Systematic Approach. Thousand Oaks,
California: Sage Publications, Inc.