The Opportunity Cost Perspective in Federal Program Evaluation: Toward an Economics of Evaluation

Public financial management has developed sophisticated systems for tracking government expenditures but comparatively limited mechanisms for accounting for what governments forgo when allocating scarce public resources. This letter argues that opportunity cost—a foundational principle of economic reasoning—remains insufficiently embedded in public resource allocation. Using federal program evaluation as an illustrative case, I introduce Economics of Evaluation, a framework that treats evaluation as a scarce investment in information whose value depends on improving decision making and public value. When evaluations are conducted primarily to satisfy institutional mandates, their economic cost extends beyond the evaluation budget to include forgone program improvements, resource reallocations, and performance gains that more decision-oriented evidence could have generated. I argue that incorporating opportunity-cost reasoning into public financial management requires moving beyond expenditure accountability toward allocation accountability, and that Economics of Evaluation provides one framework for advancing that shift.