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Economic Evaluation in Education

Economic Evaluation in Education
Cost-Effectiveness and Benefit-Cost Analysis

Third Edition

June 2017 | 376 pages | SAGE Publications, Inc

The past decade has seen increased attention to cost-effectiveness and benefit-cost analysis in education as administrators are being asked to accomplish more with the same or even fewer resources, philanthropists are keen to calculate their “return on investment” in social programs, and the general public is increasingly scrutinizing how resources are allocated to schools and colleges.


This text (titled Cost-Effectiveness Analysis in its previous editions) is the only full-length book to provide readers with the step-by-step methods they need to plan and implement a benefit-cost analysis in education. The authors examine a range of issues, including how to identify, measure, and distribute costs; how to measure effectiveness, utility, and benefits; and how to incorporate cost evaluations into the decision-making process. The updates to the Third Edition reflect the considerable methodological development in the evaluation literature, and the greater empiricism practiced by education researchers, to help readers learn to apply more advanced methods to their own analyses.

SAGE congratulates author Henry M. Levin, winner of the 2017 AERA Distinguished Contributions to Research in Education Award.

List of Tables, Figures, and Examples
Acknowledgments to the Second Edition
Acknowledgments to the Third Edition
About the Authors
Chapter 1. Introduction to Economic Evaluation
1.1. Purpose and Goals of the Book

1.2. The Importance of Economic Evaluations

1.3. Economic Evaluation for Decisionmaking in Education

1.4. Summary of Approaches to Economic Evaluation

1.5. Economic Evaluations and Policymaking

1.6. Outline of the Book

Discussion Questions

Chapter 2. Establishing an Analytic Framework
2.1. Identifying the Problem

2.2. Taking Account of the Audience and Perspective

2.3. Relating Economic Evaluation to the Theory of Change

2.4. Determining If Economic Evaluation Is Necessary

2.5. Conclusions

Discussion Questions


Chapter 3. Cost Concepts
3.1. The Concept of Costs

3.2. Cost per Unit

3.3. Costs and the Theory of Change

3.4. Costs Data and Budgetary Information

3.5. Motivation for Cost Analysis

3.6. Conclusions

Discussion Questions


Chapter 4. The Ingredients Method
4.1. Identifying Ingredients

4.2. Specifying Ingredients

4.3. Sources of Ingredients Information

4.4. Conclusions

Discussion Questions


Chapter 5. Placing Values on Ingredients
5.1. Methods for Valuing Ingredients

5.2. Placing Dollar Values on Ingredients

5.3. Costs Over Multiple Years

5.4. Conclusions

Discussion Questions


Chapter 6. Analyzing and Reporting Costs
6.1. Tabulating Total Cost Using a Cost Worksheet

6.2. Reporting Costs

6.3. Allocating Costs Among Constituencies

6.4. Analyzing Cost Determinants and Generalizing Costs

6.5. Conclusions

Discussion Questions


Chapter 7. Effectiveness
7.1. Specifying Effectiveness

7.2. Methods for Identifying Effectiveness

7.3. Utility Analysis

7.4. Conclusions

Discussion Questions


Chapter 8. Cost-Effectiveness Analysis
8.1. Cost-Effectiveness Ratios

8.2. Alternative Cost-Effectiveness Metrics

8.3. Interpreting Cost-Effectiveness Ratios

8.4. Explaining Cost-Effectiveness Ratios

8.5. Evidence on Cost-Effective Interventions

8.6. Conclusions

Discussion Questions


Chapter 9. Estimating Benefits
9.1. The Concept of Benefits

9.2. Specifying Benefits

9.3. Valuing Educational Benefits Through Earnings

9.4. Valuing Educational Benefits Through Shadow Pricing

9.5. Applying Benefits in Benefit-Cost Analysis

9.6. Conclusions

Discussion Questions


Chapter 10. Benefit-Cost Analysis
10.1. Combining Benefits and Costs Into Economic Metrics

10.2. Performing Benefit-Cost Analysis

10.3. Examples of Benefit-Cost Analysis

10.4. Conclusions

Discussion Questions


Chapter 11. Accounting for Uncertainty
11.1. Type of Uncertainty and Sensitivity

11.2. General Sensitivity Testing

11.3. Sensitivity Testing of Cost Estimates

11.4. Sensitivity Testing of Cost-Effectiveness

11.5. Sensitivity Testing of Benefit-Cost Analysis

11.6. Distributional Issues

11.7. Conclusions

Discussion Questions


Chapter 12. Checklist for Economic Evaluations
12.1. A Checklist for Appraising Economic Evaluations

12.2. Appraising Economic Evaluations

12.3. Conclusions

Discussion Questions


Chapter 13. Economic Evaluations for Education Policy
13.1. Applying Economic Analysis

13.2. Expanding the Use of Economic Evaluation

13.3. Decisionmaking and Economic Evaluation

13.4. Prioritizing Educational Investments

13.5. Using Economic Evaluations to Improve Education Research

13.6. The Future of Economic Evaluation of Education

13.7. A Final Word

Discussion Questions

Appendix A. Answers to Even-Numbered Exercises
Appendix B. CostOut Tool

“In order to improve our educational systems, we need to increase our understanding of economic evaluation. This text provides the tools for both practitioners and researchers to achieve this end. This is unequivocally the best text in the field.”

Dan Jorgensen
University of Denver

“This is a practical and clear text that practitioners can use. The authors make a strong case for the importance of economic evaluations and then provide coherent, sequential, and precise steps for conducting economic evaluations. This is a must-use for any policy methods class.”

Charol Shakeshaft
Virginia Commonwealth University

“Clear and effective representation of a valuable approach to cost analysis offered by authorities in the field.”

Charles David Crumpton
University of Maryland

This text offers evaluators a rare opportunity to enhance the effectiveness and utility of their work: Policymakers need information on programs’ effects and their costs if they are to make informed decisions. This text clearly teaches both the ‘how’ and ‘why’ of economic evaluation.

Gary Skolits
University of Tennessee

"Sound policymaking requires not just a knowledge of “what works”, but also an understanding of whether the benefits exceed the costs. This volume presents, in a clear and accessible manner, all of the tools essential to making this determination. It’s an excellent resource for policy students and policymakers alike."

David Figlio
School of Education and Social Policy, Northwestern University

Policymakers around the world face the challenge of how to use scarce resources to most effectively improve education.  Researchers are supporting their efforts by providing increasingly good evidence on the impacts of a wide range of policy initiatives such as reducing class size, introducing new instructional technologies, and basing teacher compensation on student performance. But since these initiatives have different costs, policymakers find it difficult to use the research evidence.  The third edition of Economic Evaluation in Education by Henry Levin and his colleagues provides a valuable resource to researchers who want to make evidence from impact evaluations useful to policymakers.  Topics include methods for estimating the costs stemming from initiatives and strategies to compare the cost effectiveness of initiatives with similar objectives.  Material new to this third edition includes an expanded description of how to estimate the dollar value of diverse outcomes of education and treatment of different kinds of uncertainty.  One strength of the book is the lucid application of up-to-date economics methods to concrete challenges in estimating costs and evaluating benefits.  A second is the variety of examples used to illustrate application of methods.  A third is the set of discussion questions and exercises at the end of each chapter.  These strengths make the book a wise choice as a text in Master’s level courses on making research useful to policymakers.

Richard J. Murnane
Harvard Graduate School of Education
Key features


  • A new Chapter 2 shows readers how to structure an economic analysis so that it is properly integrated with an impact evaluation and demonstrates how such an evaluation should be articulated to a theory of change.
  • Enhanced Chapters 3–6 now more clearly explain cost evaluation and provide an explicit separation between identifying ingredients and pricing them out.
  • A separate Chapter 7 sets out the preferred qualities of an effectiveness measure for the purposes of performing a cost-effectiveness analysis.
  • An enhanced Chapter 9 provides much more detail on estimating benefits.
  • A new Chapter 11 covers uncertainty and how to perform sensitivity testing.
  • A new Appendix B includes a discussion of a new tool—CostOut—for aiding researchers in performing harmonized and rigorous cost-effectiveness studies.


  • Coverage of the four major techniques of cost analysis include cost-feasibility, cost-effectiveness, cost-benefit, and cost-utility.
  • Detailed and varied examples from studies and articles ranging from education to public health introduce the principles and practice of cost-effectiveness analysis.
  • In-depth, chapter-ending exercises help readers hone their skills in evaluating policy options and program effectiveness.
  • Chapter-ending recommended readings and a comprehensive, end-of-book bibliography of methodological sources on cost analysis and educational cost studies facilitate further exploration of topics of interest.

Sample Materials & Chapters

Chapter 7

Chapter 10

For instructors

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