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'''Cost-effectiveness Analysis''' is the economic analysis of the costs and benefits of an impact evaluation project.  
'''Cost-effectiveness Analysis''' is the economic analysis of the costs and benefits of an impact evaluation project.  
== Read First ==
== Read First ==

Revision as of 11:22, 5 April 2018

Cost-effectiveness Analysis is the economic analysis of the costs and benefits of an impact evaluation project.

Read First

  • Cost-effectiveness analysis should be included in project design to compare alternative projects.


What is Cost-effective Analysis (CEA)?

CEA summarizes the results of complex program as ratio of costs to effects. It measures the cost for a given level of effectiveness, for example the cost to increase skilled birth attendance by 50 percent or vice versa, for example the percentage gain in skilled birth attendance induced by spending $100. The analysis must accurately reflect the program based on costs and impacts actually observed. It is useful for comparing multiple interventions with common outcome(s) if the costs and benefits are computed using similar methodology for all programs. It is useful for policymakers to compare programs when they are primarily concerned about one outcome of interest (e.g. increasing skilled birth attendance, not maternal and child health broadly)

Difference between Cost-effective Analysis (CEA) and Cost-benefit Analysis (CBA)

CBA compares the monetary value of benefits against costs and hence calculates the ratio of all benefits to the costs of a program. CBA can be useful to determine whether a program is worth the investment. It can also allow comparison across vastly different interventions, for example education versus agriculture. However, CBA requires a number of strong assumptions about the monetary value of all the different benefits, including the lifetime benefits of an intervention.

Cost-benefit Analysis Formula CBA Formula.jpg

CEA is transparent, simple, objective and enables comparison of programs with common outcome(s) of interest. However, the implicit assumption is a common post-intervention trajectory.

Cost-effectiveness Analysis Formula CEA Formula.jpg

Use of Cost-effective Analysis in Impact Evaluations

There are very few papers that have undertaken comparative cost‐effectiveness of different programs. Most studies don’t conduct cost analysis. Of the 77 RCTs, 56% reported zero data on incremental costs (McEwan 2014).

Studies that have incorporated CEA include:

  • Kremer, Miguel and Thornton (2005): Incentives to learn
  • Banerjee, Cole, Duflo, Linden (2007): Remedial education vs computer-assisted learning

However, these were done for the same country / organization

Challenges of Conducting Cost-effective Analysis

  • Difficult to get data on costs, especially from other authors (this is where Field Co-ordinators come in; they have an advantage in collecting local costs)
  • Difficult to compare studies ‐ exchange rates, inflation, discount rates, differing factor endowments, efficiency of implementers (CEA are sensitive to place, scale, errors in estimates)
  • Absence of publication incentives to do CEA: trade-off between exposing program effectiveness and cost‐effectiveness
Quantifying Impacts
  • Spillover effects
    • We need to include spillover effects on indirect beneficiaries when quantifying impacts for CEA
  • Impacts on multiple outcomes
    • Because CEA measures cost of obtaining impacts on a single outcome, aggregating cost-effectiveness across multiple outcomes is difficult
  • Insignificant results on outcomes
    • It is important to think about how these should be interpreted for CEA and how to present such results with costs together in publications
Calculating Costs
  • Activity-based costing

–usually start with program budgets to get a list of all relevant activities involved in implementing the program •budgets are forward-looking estimates of true costs; better to update with actual program financial records on expenditures, but this is not commonly done •need to account for how to value new assets/equipment obtained over the program implementation period; depreciation –interview program staff and field staff to get key information •unit cost data: e.g., wages for staff at various levels of implementation team, using average wages makes this less sensitive •allocation of staff time across activities

  • Modeling program costs at the margin

–want to capture marginal costs of new activities initiated as part of the interventions –Ex: school meals program: cost of new kitchen, cooks, implements, food, but NOT cost of school administration or buildings

•Find comparative costs to frame the cost analysis

  • Costs of user time

Gather costs of participation in program, including cost of time (e.g., using local wages)

  • Differentiate between Pilot Costs and Scale-up Costs

Back to Parent

This article is part of the topic Cost-effectiveness Analysis

Additional Resources


  • Cost-Effectiveness Analysis of Education & Health Interventions in Developing Countries, by McEwan (2012)
  • Comparative Cost-Effectiveness Analysis to Inform Policy in Developing Countries, by Dhaliwal et al (2011)
  • Cost-Effectiveness Measurement in Development: Accounting for Local Costs & Noisy Impacts, by Evans & Popova (2014)


  • Cost-Effectiveness Analysis: Methods & Applications, by McEwan & Levin (2000)

Other Resources

  • IDB Evaluation Hub: Cost Benefit and Cost-Effectiveness
    • Background materials
    • Terms of reference
    • Examples
    • Templates

  • Poverty Action Lab
    • Examples for student participation and student learning
    • What does this look like in Excel?