Benefit–cost analysis is used extensively in the evaluation of social programs. Often, the success or failure of these programs is judged on the basis of whether the calculated net benefits to society are positive or negative. Almost all existing benefit–cost studies of social programs count entire increases in income accruing to participants in a social program as net benefits to society. However, economic theory implies that the conceptually appropriate measure of the impact of a government program on any group of individuals is the net change in their surplus (or economic rent), rather than the net change in their income. For example, if a social program causes increases in income by increasing work hours, then the lost nonmarket time that accompanies these increases has value that needs to be counted as a cost when assessing the merits of that program. In this paper, we develop a methodology for incorporating lost nonmarket time into benefit–cost analyses of social programs. We apply our methodology to the Self-Sufficiency Project (SSP), an experimental welfare-to-work program tested on a pilot basis in two provinces in Canada during the 1990s. We find that if losses in nonmarket time are ignored, SSP yields a substantial positive net benefit to society. However, if losses in nonmarket time are taken into account, the net societal benefits are greatly reduced, even becoming negative in certain instances. We conclude that future benefit–cost analyses of social programs must take effects on nonmarket time into account in order to give a more accurate picture of the net benefits of the program.The full citation is:
Greenberg, David and Philip Robins. 2008. Incorporating Non-market Time into Benefit-Cost Analyses of Social Programs: An Application to the Self-Sufficiency Project. Journal of Public Economics 92(3-4): 766-794.
You can find a gated version here.
Valuing the non-market time of the poor means taking the economics seriously in doing the cost-benefit analysis, but it also means that fewer programs will pass cost-benefit tests.
"Valuing the non-market time of the poor means taking the economics seriously in doing the cost-benefit analysis, but it also means that fewer programs will pass cost-benefit tests."
By programs, do you mean exclusively welfare-to-work programs? In general, it seems like incorporating the nonmarket time of the poor would change which programs would pass a CB test, but not necessarily decrease it. For example, infrastructure programs that reduced the commute time of poor people would be more valuable. Similarly, programs that provided government assistance to poor people to help with their taxes, or other administrative burdens, would be more valuable. Even childcare subsidies would potentially become more valuable - even if people did not use the subsidy to do paid work, they might well use the freed up time for otherwise beneficial activities.
"but it also means that fewer programs will pass cost-benefit tests." - Why should that alone be a concern? Maybe, just maybe, we will have fewer hare-brained programs from government, designed and tracked by bureaucrats whose livelihoods depends on having a large number of programs running in order to justify their existence. Given that, I would have thought that having fewer programs clear a stiffer hurdle would be a good thing rather than a bad thing.
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