DOCUMENT RESUME ED 04E d48 VT 012 352 AUTHOR Wood, W. D.; Campbell, H. F. TITLE Cost-Benefit Analysis and the Economics of Investment in Human Resources. An Annotated Bibliography. INSTITUTION Queen's Univ., Kingston (Ontario). Industrial Felaticns Centre. REPORT NO Eibliog-Ser-NO-E PU2 EATS 70 NOTE 217F, AVAILABLE FROM Industrial Relations Centre, Queen's University, Kingston, Ontario, Canada ($10.00) EDBS PRICE EDPS Price MF-$1.00 HC Not Available from EDRS. DESCRIPTORS *Annotated Bibliographies, *Cost Effectiveness, *Economic Research, *Human Resources, Investment, Literature Reviews, Resource Materials, Theories, Vocational Education ABSTRACT This annotated bibliography presents 389 citations of periodical articles, monographs, and books and represents a survey of the literature as related to the theory and application of cost-benefit analysis. Listings are arranged alphabetically in these eight sections: (1) Human Capital, (2) Theory and Application of Cost-Benefit Analysis, (3) Theoretical Problems in Measuring Benefits and Costs,(4) Investment Criteria and the Social Discount Rate, (5) Schooling,(6) Training, Retraining and Mobility, (7) Health, and (P) Poverty and Social Welfare. Individual entries include author, title, source information, "hea"ings" of the various sections of the document which provide a brief indication of content, and an annotation. This bibliography has been designed to serve as an analytical reference for both the academic scholar and the policy-maker in this area. (Author /JS) 00 oo °o COST-BENEFIT ANALYSIS AND THE ECONOMICS OF INVESTMENT IN HUMAN RESOURCES An Annotated Bibliography by W. D. WOOD H. F. CAMPBELL INDUSTRIAL RELATIONS CENTRE QUEEN'S UNIVERSITY Bibliography Series No. 5 Cost-Benefit Analysis and the Economics of investment in Human Resources U.S. DEPARTMENT OF HEALTH,EDUCATION & WELFARE OFFICE OF EDUCATION THIS DOCUMENT HAS BEENREPRODUCED EXACTLY AS RECEIVED FRO MIMEPERSON OR ORGANIZATION ORIGINATING IT.POINTS OF VIEW OR OPINIONS STATED DONOT NECES SARILY REPRESENT OFFICIAL OFFICEOF EDU- CATION POSITION OR POLICY CO CO Lr O Cost-Benefit Analysis and the Economics of Investment in Human Resources An Annotated Bibliography W. D. WOOD H. F. CAMPBELL INDUSTRIAL RELATIONS CENTRE QUEEN'S UNIVERSITY AT KINGSTON, ONTARIO 1970 III "PERMISSION TO REPRODUCE THIS COPY- RIGHTED MATERIAL BY MICROFICHE ONLY ,H)0.9M1 MIZE wzfr44x4,. 82/X7A4...t oaLL-e,11,:ai 74)Z.44P1 TO ERIC AND ORGANIZATIONS OPERATING UNDER AGREEMENTS WITH THE U.S. OFFICE OF EDUCATION. FURTHER REPRODUCTION OUTSIDE THE ERIC SYSTEM REOUIRES PER- MISSION OF THE COPYRIGHT OWNER.- COST-BENEFIT ANALYSIS AND THE ECONOMICSOF INVESTMENT IN HUMAN RESOURCES: An AnnotatedBibliography Copyright © 1970 by Industrial Relations Centre, Queen'sUniversity Library of Congress CatalogCard Number: 7%-120922 Bibliography Series No. 5 Printed and bound in Canada by: Hanson & Edgar, Ltd., Kingston,Ontario IV PREFACE The past decade has witnessed increasing interest in both the theory and practical application of cost-benefit analysis.Our ex- perience suggested that it would be a useful and time-saving service to publish an annotated bibliography surveying some of the literature in this field. The study has been designed to serve as an analytical reference for both the academic scholar and the policy-maker in this area. The first four sections of the bibliography deal with the theoretical aspects of cost-benefit analysis, and the remaining four sections cover various practical applications of this technique to the evaluation of investment in human capital. Cost-benefit analysis is a method of investment appraisal.It can be applied to any expenditure which is capital-forming and, consequently, is expected to yield a future return. When cost-benefit analysis is applied to expenditures which purchase some Rind of treatment for human beings, it is assumed that these expenditures represent human capital formation.The first section of the biblio- graphy deals with the theory and measurement of human capital. Cost-benefit analysis involves identifying and measuring the costs associated with and the benefits expected from an investment, and comparing them. The benefit/cost ratio is only one of a number of investment criteria which are used to decide whether a proposed investment project offers an increase in economic welfare.Since benefits and costs normally take a number of different forms, the analyst attempts to make them commensurable with one another by reducing them all to money terms. An investment, by definition, incurs costs and yields benefits at more than one point in time. Costs incurred and benefits accruing at different times must be reduced to a common point in time, usually the present, before they can be compared. An interest rate is used to discount benefits and costs to present values.Where society bears the costs and reaps the benefits, the social discount rate is the appropriate interest rate. Section 3 of the bibliography deals with theoretical problems encountered in identifying and measuring the costs and benefits of an action, while section et covers the choice of an investment criterion and the identification (3; the social discount rate. Before the sections dealing with specific theoretical issues, however, section 2 introduces the reader t3 general aspects of the theory and application of cost- benefit analysis.This section contains a variety of material ranging from theoretical surveys to applications of cost-benefit analysis to government decision making within the framework of Planning- Programming-Budgeting Systems.The last four sections of the bibliography deal with attempts to evaluate investments in schooling, training, retraining, and worker mobility, health, and investments aimed at reducing poverty and increasing social welfare in some way. V For a few of the studies examined, the decision as to which section they belonged was arbitrary.To a certain extent also the decision as to which references should be included in a bibliography covering such a wide area of economic research L necessarily arbi- trary; the authors have attempted to include recent significant contri- butions to the theory and practice of cost-benefit analysis, but in many cases accessibility was the deciding factor. The structure of the annotations is as follows: the "headings" of the various sections of a study provide a brief indication of its content; where the study is divided into sections but no headings are provided, we have supplied our own. Many of the works annotated provide references to further reading and this is indicated in the headings section. Cross references are identified by their entry num- ber in this volume. Most of the references annotated are articles or monographs, but there are a number of books.On the grounds of space and time, the authors have not attempted to give a reference representa- tion in proportion to its length or to its importance. We have made no comments about the studies annotated, but have tried simply to give a brief description of their content. The authors wish to express their sincere appreciation to the Canadian Department of Manpower and Immigration fortheir financial support for this study. We are also grateful to Professor David Sewell of the Queen's Economics Department for his valuable comments and suggestions on many aspects of the project.Finally, we wish to thank Mrs. Carol Williams and Centre staff for their usual meticulous editorial supervision and proofreading. W. DONALD WOOD* HARRY F. CAMPBELL* December, 1969. * Dr. Wood isProfessor of Economics and Director of the Industrial Relations Centre, Queen's University.He is a graduate of McMaster, Queen's,andPrincetonUniversities. Mr. Campbell, a graduateof St. Andrew's University,iscurrently completing his Ph.D. programme in economics at Queen's where he also is associated in research with the Industrial Relations Centre. VI CONTENTS Preface 1. Human Capital 1 2.Theory and Application of Cost-Benefit Analysis 15 3.Theoretical Problems in Measuring Benefits and Costs 33 4.Investment Criteria and the Social Discount Rate 59 5.Schooling 95 6.Training, Retraining and Mobility 125 7. Health 189 8.Poverty and Social Welfare 197 Author Index 209 VII 1. HUMAN CAPITAL 1.ARROW, KENNETH J. "The Economic Implications of Learn- ing by Doing." Review of Economic Studies, Vol. 29 (1961-62), pp. 155-173. Headings:Introduction; The model; Wages; Profits and investment; Rational expectations in a macroeconomic growth model; Divergence of private and social product; Some comments on the model; References (15). Abstract:The author puts forward an endogenous theory of the changes in knowledge which underlie intertemporal and international shifts in production functions. Learning is assumed to take place only as a by-product of experience in production, although the model could be extended to include institutional forms of learning. The role of experience in increasing productivity has been observed in empirical studies on airframe production, national outputs, and iron production, and "learning curves" have been constructed to relate in- creases in output to increases in experience. The economic variable used to represent "experience" in this study is cumulative gross investment each new machine produced and put into use provides new stimuli to learning. Learning is assumed to take place only in the capital goads industry,i.e., technical change is completely embodied in new capital goods; the empirical studies, on the other hand, suggest that learning takes place