Abstract
One way for jurisdictions with limited analytic resources to increase their capability for doing cost–benefit analysis (CBA) is to use existing shadow prices, or “plug-ins”, for important social impacts. This article contributes to the further development of one important shadow price: the value of an additional high school graduation in the United States. Specifically, how valuable to a student, government, and the rest of society in aggregate is a high school graduation? The analysis builds on the method developed by the Washington State Institute for Public Policy and presents numerical updates and extensions to their analysis. For the U.S., the estimated net present value (the social value) using a 3 percent real discount rate of this shadow price is approximately $300,000 per each additional graduate. In appropriate circumstances, this value can be “plugged-in” to CBAs of policies that either directly or indirectly seeks to increase the number of students who graduate from high school.
Highlights
Returns on investments in education can be measured in a number of ways
As an illustration of the use of the high school graduation shadow price, we suppose that we are conducting a Cost–benefit analysis (CBA) of a program that is predicted to result in an additional 100 students graduating from high school
The availability of a shadow price for valuing additional U.S high school graduations increases the feasibility of conducting a range of social policy CBAs
Summary
Cost–benefit analysis (CBA) is a appropriate methodology to measure the returns to different levels of educational investment because it attempts to assess the relative efficiency of alternative policies comprehensively from an aggregate social perspective (Boardman et al 2018). Because impacts are spread over many years, the costs and benefits of education need to be discounted to present values in order to appropriately compare alternative public investments. In the United States, the value of graduation is important from a practical policy perspective because, in spite of increases in graduation rates over time, there is still significant variation across U.S states, and among various minority groups and income levels nationally, in high school graduation rates (Belfield and Levin 2007; Murnane 2013; Papay et al 2015). The focus of CBA is on efficiency, these variations have important distributional and social consequences
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