Use of Cost-Benefit and Cost-Effectiveness in K-12 Education

Hooray for the new Center for Benefit-Cost Studies of Education at Teachers College, Columbia University. The Center is led by the very able Henry Levin, the William Heard Kilpatrick Professor of Economics and Education at Teachers College, Columbia University, and the David Jacks Professor Emeritus of Higher Education and Economics at Stanford University, and Clive Belfield, an Assistant Professor in the Economics Department at Queens College, the City University of New York, and widely published author in the economics of education. Levin and Belfield most recently contributed to an examination of the economic losses associated with high school dropouts in California.

This focus on cost-benefit (and cost-effectiveness) studies in K-12 education is long overdue. Standards-based reforms come in many expensive forms these days, ranging from school choice and charter schools to school-based management and year-round schedules. Most educational reforms face constraints in the availability of budgetary and other resources, and limiting their evaluation to educational outcomes without considering their costs provides an inadequate basis for decision-making. Both costs and effectiveness must be known in order to make good educational decisions. Cost-effectiveness analysis is a proven evaluation tool designed to assist in comparing alternative programs or policies when resources are limited and providing guidelines on which of the alternatives provides the most impact relative to cost.

Popular in other fields, such as health care, cost-effectiveness analysis is, unfortunately, rarely used in education. A panel of experts convened by the New York State Board of Regents in 1995 identified three factors hampering use of cost effectiveness evaluation in education. One of those barriers was the lack of incentives for superintendents, principals, and other stakeholders to use cost effectiveness in decision making (NY State Board of Regents, 1996). Levin (2001) has also pointed to policymakers’ lack of demand for cost-effectiveness analyses as a reason for their paucity in educational evaluation.

Policy could be an effective tool to promote the use of cost-effectiveness analysis. The federal government could incentivize its use through inducements, such as discretionary grants to support evaluation activities for the implementation of innovative programs and policies. This approach has proven effective in promoting “scientifically-based research” and rigorous evaluation through discretionary grants under the No Child Left Behind Act. However, federal grants provide a very small percentage of school revenues and, therefore, have minimal impact on creating a widespread demand for cost-effectiveness analysis.

States, on the other hand, fund a considerable share of local education and exercise strong authority over local spending. State policy on use of cost-effectiveness analysis could have a substantial impact on school district practices. Working on this issue with a powerful bipartisan public policy group such as the National Governors Association or the Education Commission of the States might provide the lever to ensure that cost-effectiveness analysis becomes a widely accepted technique of educational evaluation.

Educational decision-makers need to understand the relationship between policy expenditures and student achievement outcomes in order to make the most informed decisions on how to allocate funding. Use of cost-effectiveness analysis in program evaluation holds the potential to make considerable contributions to informed public discussion on educational policy and resource allocation.