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CE analysis is an evaluative technique that compares policies or programs based on their ratios of costs to educational results on a quantifiable (but not monetized) effectiveness measure (Boardman, Greenberg, Vining, & Weimer, 2011, Chapter 18; Levin, 1975). This analysis allows us to take account of both the costs and effects of selecting alternatives, making it possible to choose those alternatives that provide the best results for any given resource outlay or that minimize the resource utilization for any given outcome. For example, we can compare alternative interventions for improving academic performance in mathematics or reading to consider the interventions that show the largest achievement gain relative to their costs.

Standard approaches to evaluation are more limited because they primarily focus on the effectiveness of alternatives, such as impacts on test scores, socioemotional skills, high school graduation, and so on. Presumably one need just choose those interventions that show large effect sizes over those that show small effect sizes. However, the absence of cost information means that such results should never be used for decisionmaking in isolation. For example, if one of the interventions is associated with an effect size on achievement of 0.6 and another of 0.4, it does not necessarily follow that the first of the interventions is the superior one. What if the cost of the first intervention is $400 per student and the cost of the second is $200 per student? For any given budget, the overall effect of spending it entirely on the second intervention may improve achievement far more than spending it on the first alternative. By combining cost information with appropriate measures of effectiveness, we are able to use resources more productively and improve educational outcomes with given resources. Policy decisions in the public sector must be based increasingly upon a demonstrated consideration of both costs and effects.

Effectiveness can be measured in various ways, depending on the needs of the decisionmaker. For example, alternative interventions can be evaluated on the basis of their cost for raising student test scores by a given amount, or the cost for each potential dropout averted, or the cost per instance of conduct disorder. Moreover, the education system can serve to effect broader societal change: the installation of water fountains in schools can reduce obesity, for example, by reducing the consumption of sugary beverages (Muckelbauer et al., 2009; Schwartz, Leardo, Aneja, & Elbel, 2016). From a decision-oriented perspective, the most preferable alternatives would be those that show the lowest cost for any given increase in the selected effect. By choosing the most cost-effective alternative, we free up resources that can be invested in other aspects of education (or in another endeavor). However, CE requires that (a) only programs with similar or identical goals can be compared and (b) a common measure of effectiveness can be used to assess them. These effectiveness data can be combined with costs in order to provide a CE evaluation that will enable the selection of those approaches that provide the maximum effectiveness per level of cost or that require the least cost per level of effectiveness. For an illustration of this, see Example 1.2.

Example 1.2 Cost-Effectiveness Analysis of Primary School Investments in Northeast Brazil

The states that form northeast Brazil are among the poorest areas in the world. In the 1980s, many children did not even attend primary school. Of those children who did, schools were often attempting to provide education without many basic resources, including infrastructure, classroom materials such as textbooks, and well-trained teachers. In an environment of low student achievement and resource scarcity, determining the cost-effectiveness (CE) of school investments becomes particularly important. How can the limited funds available to the school system be spent in order to maximize the academic achievement of students?

The following table shows the results from a CE analysis by Harbison and Hanushek (1992). First, the range of possible educational interventions are specified; these are shown in the first column. The first category is infrastructure: the provision of potable water, of basic school furniture (e.g., desks), and additional school facilities (e.g., school offices), and then a combination of all these (“hardware”). The second category, material inputs, includes two interventions: (1) student textbooks and writing materials and (2) the combination (“software”). The teacher category includes two separate in-service teacher training programs (curso de qualificação and Logos II), either 4 or 3 years of additional formal schooling, and an increase in teacher salaries.