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1 Describe the objectives of this book.

2 Define economic evaluations of educational interventions.

3 Identify and describe the types of analysis.

4 Provide motivation for economic evaluation.

A book should begin by tempting the reader with the importance of the subject or the excitement of the story that follows. In our case, this might appear to be a tall order. Yet, consider the size of the education industry in the United States—over $1 trillion in 2015—and across the world—approximately 5% of gross domestic product (Organisation for Economic Co-operation and Development [OECD], 2014). Despite this enormous resource base, educational institutions are constantly engaged in a quest for more resources to meet new aspirations or unfulfilled needs. If efficiency in the United States were to improve by only 2%, then $22 billion would be available for other purposes. At the level of a school district, an improvement of that magnitude would provide an additional $180 per student or about $4,500 per classroom in the K–12 system. However, these gains can be accomplished only by identifying ways to use existing resources more efficiently. Can we identify these ways? We can imagine spending $1 trillion each year and wondering the following: Is this the right amount? Is it too much or too little? Are we getting the biggest payoff we can from this investment? Should we move resources from colleges to schools? From administrators to teachers?

The purpose of economic evaluations is to answer these efficiency questions. Performed as cost-effectiveness (CE) analysis, it is a method for choosing among alternatives in order to select those that are able to accomplish a given result most parsimoniously. Performed as benefit-cost (BC) analysis, it is a method for determining whether the society is investing efficiently in education and whether the returns on education justify the costs.

Some might say that we ought to be less concerned with the quest for efficiency and more concerned with simply finding more resources, although this is hardly an either–or proposition. For example, imagine that a new state lottery is expected to yield hundreds of millions of dollars in new revenues for public education. Legislators and school administrators have proposed a number of alternative uses, including class size reduction, teacher training, and renovation of aging school facilities. How should the funds be apportioned among these alternatives if our goal is to maximize student learning? Or, on a smaller scale, imagine that each teacher in a school has been given $500 in discretionary funds. How should these funds be invested in the classroom so as to contribute to the greatest improvements in learning? Conversely, the education revenues of a large urban district might have declined sharply such that programs must be eliminated to stay within budget: If the goal is to minimize the declines that might occur in student learning, which programs should be eliminated? In fact, across the United States this cost-cutting question is becoming more salient: Within the K–12 sector, 31 states provided less funding per student in real terms in 2014 than they did in 2008; similarly, community college revenues fell every year from 2008 to 2013 (Desrochers & Hurlburt, 2016; Leachman, Albares, Masterson, & Wallace, 2016).

In all of these cases, and within this economic context, we are understandably concerned with obtaining the most “bang” for the “bucks” that are spent on education. Instead of relying upon guesswork or politics to make these hard decisions about education programs or interventions, we could undertake a systematic economic evaluation. This would first require estimation of costs. Then these costs would be linked to effects to establish cost-effectiveness or with benefits to establish the value of the program or intervention. We believe these evaluation methods can make an important contribution to education policy. Indeed, this is our motive for writing this book.

In this introductory chapter, we first set out the purposes of this book and what we hope to provide for the reader. Next, we explain why economic evaluation may be useful in many educational contexts as a way to understand and interpret research findings. We then give an overview of the best way to calculate costs—the ingredients method—and three methods of economic evaluation: (1) cost analysis, (2) CE analysis, and (3) BC analysis. Lastly, we explain how we see economic evaluations working in the policy context. As an overview, this material serves as preparation for the greater detail provided in the subsequent chapters.