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TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION INVESTMENTS

TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION INVESTMENTS. EDUARDO VELEZ AFTH1 December 1998. 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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TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION INVESTMENTS

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  1. TECHNIQUES FOR COMPARING ALTERNATIVE EDUCATION INVESTMENTS EDUARDO VELEZ AFTH1 December 1998

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

  3. 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?

  4. 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

  5. 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.

  6. 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.

  7. D. What are the equity implications? • Another dimension of the economic analysis is to check the consistency of the proposed investment with the Bank’s poverty reduction strategy in the country. What groups would benefit (gender, ethnic, regions, income, etc.)?

  8. 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.

  9. 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.

  10. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE OF EFFECTIVENESS Program completions No. of students completing program

  11. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE OF EFFECTIVENESS Program completions No. of students completing program Reducing dropouts No. of potential dropouts who graduate

  12. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE 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

  13. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE 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

  14. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE 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

  15. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE 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

  16. COST-EFFECTIVENESS (CE) ANALYSISExamples of Effectiveness Measures PROGRAM OBJECTIVESMEASURE 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

  17. COST-EFFECTIVENESS (CE) ANALYSISHypothetical Cost-Effectiveness Result for Remedial Science Programs Method Small groups Special tutors CAI Additional hrs

  18. 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 Additional hrs

  19. 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 Additional hrs

  20. 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

  21. COST-EFFECTIVENESS (CE) ANALYSISCost-effectiveness 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.

  22. COST-EFFECTIVENESS (CE) ANALYSISCost-effectiveness 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

  23. COST-EFFECTIVENESS (CE) ANALYSISCost-effectiveness of Inputs for Portuguese Achievement 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 Input Water School furniture School facilities Hardware Textbook usage Writing materials Software Teacher salary Training Logos II 4 year primary 3 years secondary

  24. COST-EFFECTIVENESS (CE) ANALYSISCost-effectiveness of Inputs for Portuguese Achievement Achievement change by input (coefficients) 3.513 -5.650 7.228 8.969 6.403 4.703 4.864 0.055 -0.160* 3.594 3.177 2.383 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 Input Water School furniture School facilities Hardware Textbook usage Writing materials Software Teacher salary Training Logos II 4 year primary 3 years secondary

  25. COST-EFFECTIVENESS (CE) ANALYSISCost-effectiveness of Inputs for Portuguese Achievement Achievement change by input (coefficients) 3.513 -5.650 7.228 8.969 6.403 4.703 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 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 Input Water School furniture School facilities Hardware Textbook usage Writing materials Software Teacher salary Training Logos II 4 year primary 3 years secondary

  26. 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?

  27. 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

  28. 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 11.5 3. Build new school for grades 3-6 and retain one existing school for grades K-2 49.5 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 70.0

  29. 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 11.5 65,500 3. Build new school for grades 3-6 and retain one existing school for grades K-2 49.5 4. Expand one of the existing schools to accommodate all the students 690,800 5. Upgrade the existing schools, using one for grades 3-6, and the other for grades K-2 70.0 532,200

  30. 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 IRR=21.0% NPV=885,202

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