CONSIDERATIONS
IN APPLYING

BENEFIT-COST
ANALYSIS


to Preventive Interventions
for Children, Youth,
and Families

WORKSHOP SUMMARY

Steve Olson and Kimber Bogard, Rapporteurs


Board on Children, Youth, and Families

                INSTITUTE OF MEDICINE AND       
NATIONAL RESEARCH COUNCIL
                         OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

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Steve Olson and Kimber Bogard, Rapporteurs Board on Children, Youth, and Families

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, NW Washington, DC 20001 NOTICE: The workshop that is the subject of this workshop summary was ap- proved by the Governing Board of the National Research Council, whose mem- bers are drawn from the councils of the National Academy of Sciences, the Na- tional Academy of Engineering, and the Institute of Medicine. This activity was supported by Contract/Grant No.13-103067-000-USP between the National Academy of Sciences and the MacArthur Foundation. The views presented in this publication do not necessarily reflect the views of the organiza- tions or agencies that provided support for the activity. International Standard Book Number-13: 978-0-309-30105-3 International Standard Book Number-10: 0-309-30105-X Additional copies of this workshop summary are available for sale from the National Academies Press, 500 Fifth Street, NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334-3313; http://www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at: www.iom.edu. Copyright 2014 by the National Academy of Sciences. All rights reserved. Printed in the United States of America The serpent has been a symbol of long life, healing, and knowledge among al- most all cultures and religions since the beginning of recorded history. The ser- pent adopted as a logotype by the Institute of Medicine is a relief carving from ancient Greece, now held by the Staatliche Museen in Berlin. Suggested citation: IOM (Institute of Medicine) and NRC (National Research Council). 2014. Considerations in applying benefit-cost analysis to preventive interventions for children, youth, and families: Workshop summary. Washing- ton, DC: The National Academies Press.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. C. D. Mote, Jr., is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the re- sponsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the Nation- al Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. C. D. Mote, Jr., are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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PLANNING COMMITTEE ON STANDARDS FOR BENEFIT- COST ANALYSIS OF PREVENTIVE INTERVENTIONS FOR CHILDREN, YOUTH, AND FAMILIES1 JEANNE BROOKS-GUNN (Chair), Virginia & Leonard Marx Professor of Child Development, Columbia University ANIRBAN BASU, Associate Professor and Director, University of Washington, Seattle JANET CURRIE, Henry Putman Professor of Economics and Public Affairs, Princeton University School of Public and International Affairs JORGE DELVA, Professor and Associate Dean for Research, School of Social Work, University of Michigan ROSEANNE FLORES, Associate Professor of Psychology, Hunter College, City University of New York J. DAVID HAWKINS, Endowed Professor of Prevention, School of Social Work, University of Washington, Seattle LYNN KAROLY, Senior Economist, RAND Corporation MELANIE LUTENBACHER, Associate Professor of Nursing and Medicine, Vanderbilt University DAN ROSENBAUM, Senior Economist, Economic Policy Division, U.S. Office of Management and Budget GARY VANLANDINGHAM, Director, Pew Charitable Trusts Project Staff KIMBER BOGARD, Project Director (from November 2013) JOSHUA JOSEPH, Project Director (until November 2013) WENDY KEENAN, Program Associate DOUGLAS KANOVSKY, Senior Program Assistant 1 Institute of Medicine planning committees are solely responsible for organiz- ing the workshop, identifying topics, and choosing speakers. The responsibility for the published workshop summary rests with the workshop rapporteurs and the institution. v

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Board on Children, Youth, and Families Staff FAYE HILLMAN, Financial Associate PAMELLA ATAYI, Administrative Assistant KIMBER BOGARD, Director vi

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REVIEWERS This workshop summary has been reviewed in draft form by individ- uals chosen for their diverse perspectives and technical expertise, in ac- cordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published workshop summary as sound as possible and to en- sure that the workshop summary meets institutional standards for objec- tivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integri- ty of the process. We wish to thank the following individuals for their review of this workshop summary: Anirban Basu, University of Washington Lynn A. Karoly, RAND Corporation Irwin Sandler, Arizona State University David L. Weimer, University of Wisconsin Although the reviewers listed above have provided many construc- tive comments and suggestions, they did not see the final draft of the workshop summary before its release. The review of this workshop summary was overseen by Hugh H. Tilson, University of North Caroli- na at Chapel Hill. Appointed by the Institute of Medicine, he was respon- sible for making certain that an independent examination of this work- shop summary was carried out in accordance with institutional proce- dures and that all review comments were carefully considered. Responsi- bility for the final content of this workshop summary rests entirely with the rapporteurs and the institution. vii

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Contents 1 INTRODUCTION AND THEMES OF THE WORKSHOP 1 Themes of the Workshop, 4 Organization of This Report, 8 2 BENEFIT-COST ANALYSES: EXAMPLES FROM THE FIELD 9 The Washington State Institute for Public Policy, 9 Communities That Care, 14 Evaluations by MDRC, 18 3 ASSESSING THE COSTS AND BENEFITS OF INTERVENTIONS 21 An Ingredients Approach to Costing Preventive Interventions, 21 Cost Analysis for Planning Purposes, 24 Valuing the Outcomes of Intervention, 28 4 ISSUES TO CONSIDER IN BENEFIT-COST ANALYSIS 35 Identifying Causal Estimates by Research Design, 35 Designing Error-Tolerant Studies, 38 Deciding What Evidence to Include, 40 Issues with Randomized Controlled Trial Designs, 43 Increasing the Comparability of Benefit-Cost Analyses, 44 Expressing Uncertainty in Benefit-Cost Analyses, 48 The Potential Compensation Test and Discount Rates, 49 ix

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x CONTENTS 5 TRANSLATING RESULTS TO INFORM POLICY AND PRACTICE 53 A Perspective from the Office of Management and Budget, 53 A State Policy Perspective, 55 A Perspective from the Department of Health and Human Services, 58 A Perspective from the States, 60 REFERENCES 63 APPENDIXES A GLOSSARY 67 B WORKSHOP AGENDA 69