Cost estimation in education: The ingredients method

Clive Belfield, A. Brooks Bowden and Henry Levin ()

Chapter 16 in Teaching Benefit-Cost Analysis, 2018, pp 200-207 from Edward Elgar Publishing

Abstract: In this chapter, we describe the ingredients method as a simple but formal way to estimate costs for the purposes of benefit-cost analysis. The ingredients method distinguishes between input quantities and prices; the product of quantities and prices yields an estimate of the total social cost of an intervention, program or policy. We begin by clarifying what is meant by “cost†and why budgetary information is unlikely to be adequate for cost analysis. We then describe the ingredients method – how to identify inputs and price out these inputs so that they reflect opportunity cost. Next, we explain why the ingredients method is preferred in terms of transparency, informational content, and ease of sensitivity testing. We conclude with an exercise that illustrates how the ingredients method is applied and why it is preferred to alternative costing methods.

Keywords: Economics and Finance; Teaching Methods (search for similar items in EconPapers)
Date: 2018
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