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The Efficiency Potential in Social Programs: Accounting for Heterogeneity in Benefit-Cost Analysis1

Published online by Cambridge University Press:  07 March 2017

Nicolai Kristensen ,
Christophe Kolodziejczyk ,
Iben Bolvig  and
Kurt Houlberg
Nicolai Kristensen*
Affiliation:
KORA, Danish Institute for Local and Regional Government Research, Denmark, Phone: +45 2511 7372, e-mail: nikr@kora.dk. Address: Koebmagergade 22, 1150 Copenhagen K, Denmark Institute of the Study of Labor (IZA), Germany
Christophe Kolodziejczyk
Affiliation:
KORA, Danish Institute for Local and Regional Government Research, Denmark
Iben Bolvig
Affiliation:
KORA, Danish Institute for Local and Regional Government Research, Denmark
Kurt Houlberg
Affiliation:
KORA, Danish Institute for Local and Regional Government Research, Denmark
*
*e-mail: nikr@kora.dk
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Abstract

Traditionally, benefit-cost analyses focus on average benefits and average costs. However, heterogeneous treatment effects and/or costs are most often present, which means that there is an efficiency potential hidden in the implementation of public programs, if policies can be targeted at those who, net of costs, benefit the most. We introduce efficiency potential defined as the ratio between the net benefit achieved under perfect selection of the individuals with significant positive net benefit of program participation, and the actually realized benefits net of costs. Using data from a randomized control-trial experiment of a Danish return-to-work program combined with rich administrative records and survey data, we find that there is indeed a potential for increased efficiency. Results from the treatment literature indicate that, generally, it may be difficult to harvest the full potential. Our application corroborates this finding.

Keywords

I180J48H7benefit-cost analysisheterogeneous treatment effectsMonte Carlo simulationRCTreturn-to-work coordination
Type
Articles
Information
Journal of Benefit-Cost Analysis , Volume 8 , Issue 1 , Spring 2017 , pp. 1 - 23
Copyright
© Society for Benefit-Cost Analysis 2017 

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Footnotes

1

We thank the editor and two anonymous referees for very helpful suggestions. We also thank The National Research Centre for the Working Environment (NFA) for access to data and Birgit Aust and Lars Skipper for helpful comments.

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