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Having defined and illustrated the approaches to economic evaluation, we provide a summary that allows them to be compared. As shown in Table 1.1, the approaches are similar but have key distinctions. Each has strengths and weaknesses. Although BC analysis is the most comprehensive, it requires the most analytical effort and may not be required to respond to a particular decisionmaker’s needs. After reading the subsequent chapters, you may find it helpful to return to Table 1.1 in order to solidify your understanding.

Most economic evaluations use either CE or BC analysis (CF is often incorporated as a preliminary endeavor, and CU analysis is a derivative of CE analysis). The bulk of our attention is therefore directed to these two methods.

Although they seem similar, CE and BC analyses are different in one very important way. We distinguish between the two in simple terms. The CE analyst would ask, What is the lowest cost alternative to get outcome X? The BC analyst would ask, Should we invest in program Y that produces outcome X? So, one might investigate with CE analysis whether the Wilson Reading System is more cost-effective than Corrective Reading. Instead, one might investigate with BC analysis if investing in reading is more valuable than investing in math (remembering that doing one implies less of the other because of resource constraints). Formally, both questions can be described as efficiency questions: CE refers to productive efficiency, and BC refers to allocative efficiency. However, to avoid confusion we describe results from CE analyses based on whether they are cost-effective relative to alternatives; BC analyses have tended to use the term efficiency, so we use that term here.

Table 1.1

The consistency that carries throughout economic evaluation is the measurement and reporting of the intervention’s cost. This textbook describes and discusses the application of the ingredients method. The ingredients method utilizes the economic principle of opportunity cost to include all resources that were utilized during implementation to generate an outcome. The approach is transparent and easy to interpret by following common procedures in cost accounting. The resulting research on costs provides the audience with information about the resources uses, including their qualities and quantities, as well as the price value of each resource. The resulting estimate of total social cost and average cost per student are consistent for any of the economic evaluations discussed here.