A Cost–Benefit Approach
Chapter 32: Human Capital Theory
32. Human capital theory In Part I we came across the claim that saving lives is what HIV/AIDS interventions is, or should be, all about. There we pointed out that not all HIV interventions saved lives; and even if they all did, there may be other uses of resources (such as for nutrition or treating other diseases) where even more lives could be saved, or the same number of lives could be saved at lower cost. So one needs to evaluate all interventions, no matter how obviously beneficial they may seem to be in terms of saving lives. For the rest of Part III we will accept that saving lives is the main objective of HIV/ AIDS projects and see how CBA can be used to evaluate the projects from this perspective. In this chapter and the next we deal with the most common way of dealing with the estimation of lives saved and lost in CBA, and in the following two chapters we will examine best practice for valuing lives. THE HUMAN CAPITAL APPROACH The basic idea behind this method for estimating benefits is that the value of a person’s life that you save can be measured by the present value of the lifetime earnings of the individual. The wages of an individual are determined by the value of the product that the worker produces. The greater the quantity of goods generated, and the amount that people are willing to pay for the goods and services produced, the more...
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