Strengthening Benefit-Cost Analysis for Early Childhood Interventions Workshop Summary (2009) / Chapter Skim
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5 A Closer Look at the Problem of Valuation
5 A Closer Look at the Problem of Valuation
Pages 37-46
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From page 37... ...
Myrick Freeman, Philip Cook, and Donald Kenkel dis cussed the ways monetary values are assigned to outcomes in three sectors, respectively: (1) environmental economics, (2)
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From page 38... ...
Theoretically, the ideal way to conduct a benefit-cost analysis for early childhood interventions would be to use a long-term random assignment experiment, much like the Perry Preschool Project, "except bigger and perhaps more geographically representative," Weimer explained. These data would make it possible to predict the impact of other similar programs, using shadow prices to estimate earnings changes, quality of life changes, willingness to pay for various benefits, and so forth.
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From page 39... ...
It is also important to decrease the cost of conducting benefit-cost analyses, because, until that happens, "we're not going to have enough of it." The shadow prices are key to efficient, low-cost analyses, but, he noted, "we have to go outside of our discipline sometimes to do that." EXAMPLES FROM OTHER SECTORS Environmental economics, criminal justice, and health economics are three fields that have made considerable progress in the use of benefitcost analysis, and each offers insights that could be useful in the context of early childhood. Environmental Economics The degradation of environmental resources -- such as clean air and water, biodiversity, a healthy ecosystem -- was an early impetus for economists to develop ways of assigning monetary value to benefits or resources that are not traded for money.
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From page 40... ...
This is done using hedonic wage models; similar models are used to examine housing prices to identify people's willingness to pay to live near such amenities as a park, a waterfront, or a school. The other set of methods is the stated preference method, in which people are asked hypothetical questions about their preferences and willing ness to pay for various benefits.
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From page 41... ...
from limiting lead exposure. These health benefits have economic benefits, such as reduced education and medical costs, improved lifetime earnings, and reduction in antisocial behavior.
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Criminal Justice Attaching value to the impacts of crime is done using similar methods and raises many of the same points, Philip Cook explained. He illus trated valuation for crime-related questions with a simple example.
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From page 43... ...
Some have questioned these numbers, but potential benefits are nevertheless very large. Picking up the example of reducing children's exposure to lead, Cook suggested that if a generation grows up with a lower average criminal propensity because of widely decreased lead exposure, the result will be "not just less crime but an array of outcomes that will be interacting with each other: less crime, lower response costs from the public and private sectors, and so on." Valuing these system-wide benefits is challenging but nevertheless important.
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From page 44... ...
. The researchers examined the cost-effectiveness of several different approaches both to testing children for exposure and to treating those who are exposed, including remedial education to address cognitive disability and chelation to remove the lead (a painful and expensive procedure)
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From page 45... ...
The QALY weight calculated for fetal alcohol spectrum disorder was 0.47, in this case based on a survey of 126 children and families about their experiences with moderate to severe dysfunction resulting from the dis order. Kenkel noted that there are many other studies using QALYs that may have stronger evidence to support these sorts of calculations, but that applying the approach to children is not a well-developed procedure.
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From page 46... ...
. It is very clear that estimates of cost savings from interventions have a lot of persuasive appeal." He closed with a quotation from a 1971 paper called Evaluation of Life and Limb: A Theoretical Approach, "In view of the existing quantomania, one may be forgiven for asserting that there is more to be said for rough estimates of the precise concept than precise estimates of economically irrelevant concepts" (Mishan, 1971)
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