Target-Setting versus a Calculus of Benefits and Costs

Abstract

We have advocated above that expenditures on human development should be based in part on a calculus of benefits and costs. We are, of course, aware that it often is difficult to measure accurately the benefits of investing in people — the costs are relatively easy — but none the less we believe that all investment projects, be they additions to the stock of human, physical or natural capital, should be subjected to similar scrutiny and should be required to pass the same test. The intellectual discipline required by a calculus of benefits and costs forces analysts to make hidden assumptions explicit, enables policymakers to compare on an equal basis the alternative uses of public funds and can help prevent a waste of scare investment resources. Whether the decision rule is a benefit-cost ratio greater than one, or a positive net present value or an internal rate of return greater than a predetermined value is a secondary matter. The important thing is that a genuine effort be made to calculate benefits and costs rather than rely on intuition, common sense or political expediency.