Penny Wise and Effect Size Foolish, Greg Duncan, Institute for Policy Research, Northwestern University

Publication Date: March 5, 2007

This session focused on the merits of incorporating cost and benefit analysis into effect size calculations for intervention studies. In the Tennessee Star class size experiment students were randomly assigned to classrooms that averaged 15 students or 22 students for an average of 2.3 years. Schanzenbach completed an analysis of the ACT test scores for many of the students in the Tennessee Star experiment. The estimate of a .15 standard deviation achievement impact on ACT tests scores, near the end of high school, is a decidedly small effect size according to Cohen’s standards. A cost benefit perspective would examine what the .15 effect size is worth and what does it cost.

It is easy to translate the 22 versus 15 student class size into an approximate cost. The smaller class size cost an additional $11,500 per pupil. The cost-benefit question determines whether the dollar benefits exceed the $11,500 cost. One approach it is to try to translate test scores into productivity effects. The economics literature suggests that a one standard deviation increase in test scores produces an approximately 20 percent increase in lifetime earnings. Thus, a .15 standard deviation achievement impact translates into lifetime earnings gains of $17,000, some 1.5 times the cost of the intervention. Other possible benefits, such as crime reduction might also add to the benefit total. As a result, this benefit may well be a conservative estimate. The point to emphasize is that inexpensive programs with small effects may generate more benefits than costs and thus be worthwhile public investments. Conversely, expensive programs with big effects may cost more than they are “worth.”

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