Principles and Standards for Benefit–Cost Analysis

Principles and Standards for Benefit–Cost Analysis

Edited by Scott O. Farrow and Richard Zerbe, Jr.

Benefit–cost analysis informs which policies or programs most benefit society when implemented by governments and institutions around the world. This volume brings together leading researchers and practitioners to recommend strategies and standards to improve the consistency and credibility of such analyses, assisting analysts of all types in achieving a greater uniformity of practice.

Chapter 2: Toward standardization of benefit–cost analysis of early childhood interventions

Lynn A. Karoly

Subjects: economics and finance, public sector economics, valuation


There is a growing body of evidence regarding the favorable effects of investing early in the lives of disadvantaged children through such programs as home visiting and early childhood education. Such programs have demonstrated short-and longer-term benefits for both participating children and their families through rigorous experimental and quasi experimental evaluations (Karoly et al., 2005). Advocates who call for devoting more resources to such programs have drawn attention to the associated benefit–cost analyses (BCAs) that also show positive economic returns, whether to the participating families and children or to society more generally. As funders in the public and private sectors consider such investments, the evidence of favorable benefit–cost ratios, net benefits, or internal rates of return have further boosted enthusiasm for directing more resources to early childhood programs. Ultimately, the BCAs of early childhood programs fulfill the increased demand for results-based accountability when allocating public and private sector resources. Although the BCAs of early childhood programs serve to make such investments more compelling, there are limitations in the current state of the art. Most importantly, there are a number of decisions about the methods to employ when implementing a BCA—from discount rates to shadow prices—and analysts typically do not follow a standardized approach.

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