|Educational Cost-benefit Analysis - Education Research Paper No. 02 (DFID, 1993, 27 p.)|
"Of all the techniques of investment appraisal which in recent years have come to be applied to the public sector, none has attracted more attention than cost-benefit analysis". (Blaug, 1 970).
This quotation, taken from one of the world's leading authorities in the field of the economics of education, may be taken to epitomise current thinking among academics, educational policy-makers and planners, regarding the usage of cost-benefit analysis as a methodological technique in education decision-making.
The use of educational cost-benefit analysis is now widely accepted, not least in connection with the development of education systems in Third World countries. It has much to commend it and is widely seen as preferable, both in theory and in practice, to the major alternative techniques, namely manpower planning and the social demand approach.
Yet there is, at the same time, considerable unease over its usage, especially regarding some of the restrictive assumptions that have to be made and regarding problems of data availability and the necessary adjustments that frequently have to be made to data. Some twenty years ago, Vaizey and Sheehan (1972) concluded "The usefulness of such studies is very limited" and more recently the Overseas Development Administration (1990) commented: "Recent studies have shown this method to be both fallacious and limiting".
One of the major writers in this field observed: "the rate of return subject is still highly controversial in the literature" (Psacharopoulos, 1981).
This paper will review the current state of thinking relating to educational cost-benefit analysis and suggest a number of possible modifications, in accordance with the terms of the project proposal provided by the Overseas Development Administration and reproduced at Appendix A.