As part of the Global Impact Study, we are interested in analyzing the benefits and costs of public access to information and communication technology.
Many agree that social programs create value; fewer agree on a metric for comparing value from different social programs. Despite the demand for programs that create value, expenditures on social programs are constrained by budgets. The result is a dilemma: decision makers are charged with allocating limited funds for social programs but are presented with social outcomes from one program and different social outcomes from another program. Ideally the benefits and costs of one type of program could be compared with the benefits of another type of program in like terms. To confound this dilemma, the costs of social programs are not often distributed proportionately to the benefits; in many social programs, some pay more but receive less benefit, while others pay less but receive more benefit. What is a decision maker to do?
One option is to use the diagnostic tool of benefit cost analysis (BCA). BCA is an accounting framework used to evaluate the consequences of decisions to either fund or not fund a program, or to choose one type of social program over another. BCA informs decision makers by comparing costs and benefits of alternative outcomes in monetized units in current dollars. Costs are a combination of foregone opportunities and expenditures. Benefits are increases in public welfare. Two things set BCA apart from the typical financial analysis associated with the phrase “accounting framework.” First, the objective of BCA is to increase public welfare, not profit or personal gain. Second, the costs and benefits are often a combination of market goods and non-market goods. In instances when market prices exist the market prices are used as either costs or benefits. In instances where the element of public welfare is not bought and no market price exists then surveys are used to estimate non-market prices. Other elements of BCA are shared with financial accounting: discounting future benefits, accounting for the risk and uncertainty, and benefit cost ratios. If performed accurately and if presented with appropriate caveats, BCA is an informative tool to present decision makers with options described in like terms between un-like options.
The Global Impact Study is developing survey and hedonic pricing methods for describing the benefits and costs of public access to information and communication technology in seven countries.
For more information and resources on benefit cost analysis, visit the University of Washington’s Evans School BCA Center website.