Economic Appraisal in Tertiary Education: A Comparative Analysis of Cost-Effective Analysis and Cost-Benefit Analysis

The financial sustainability of higher education institutions has become a main concern for university officials, government agencies, and other members of the community. As the amount of costs for instruction increases while public funding stays at the same level - the so-called “scissors effect” - the need for detailed economic evaluation has become so important that it can no longer be considered as a mere administrative task only. This work provides an elaborate biologistic investigation of Cost-effectiveness Analysis (CEA) and Cost-Benefit Analysis (CBA) in a higher education setting. Drawing on Henry M. Levin’s “Ingredients Approach” as a guide, it touches on the necessary methodological requirements for identifying, valuing, and allocating costs in the educational sector, which is a complex one. The research also covers the difference in concepts between technical efficiency, which is the domain of CEA, and allocative efficiency, the domain of CBA, through the use of natural units of effectiveness and monetized benefits respectively. Besides gathering a large sample of empirical evidence and case studies such as the Freshman Research Initiative (FRI) at the University of Texas, the financial trade-offs in digital library infrastructure among others, the paper reveals that different economic perspectives provide different insights into institutional performance. Results show that although CBA to a greater extent allows measuring education’s contribution to “human capital,” the method is more completeness and accountability to society. CEA, on the contrary, offers very precise and detailed information about program development and the reallocation of resources which can be comparative and even differ in various situations. The report ends with major educational consequences relating to equity and access, as well as a set of strategic proposals for the use of uniform economic evaluation systems in the administration of universities.