Abstract
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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 766-794 |
| Number of pages | 29 |
| Journal | Journal of Public Economics |
| Volume | 92 |
| Issue number | 3-4 |
| DOIs | |
| State | Published - Apr 1 2008 |
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Keywords
- Benefit-cost analysis
- Financial incentive programs
- Labor supply analysis
- Program evaluation
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
Incorporating nonmarket time into benefit-cost analyses of social programs : An application to the self-sufficiency project. / Greenberg, David H.; Robins, Philip.
In: Journal of Public Economics, Vol. 92, No. 3-4, 01.04.2008, p. 766-794.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Incorporating nonmarket time into benefit-cost analyses of social programs
T2 - An application to the self-sufficiency project
AU - Greenberg, David H.
AU - Robins, Philip
PY - 2008/4/1
Y1 - 2008/4/1
N2 - 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.
AB - 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.
KW - Benefit-cost analysis
KW - Financial incentive programs
KW - Labor supply analysis
KW - Program evaluation
UR - http://www.scopus.com/inward/record.url?scp=38949136292&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=38949136292&partnerID=8YFLogxK
U2 - 10.1016/j.jpubeco.2007.09.011
DO - 10.1016/j.jpubeco.2007.09.011
M3 - Article
AN - SCOPUS:38949136292
VL - 92
SP - 766
EP - 794
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
IS - 3-4
ER -