Course on Economics of Education and Economic Analysis of Education Projects
CASE STUDY ON DESIGNING AN ECONOMIC ANALYSIS: COSTA RICA1 Problem Set
The task: Read the attached abbreviated and extensively modified project analysis document description of the Costa Rica Equity and Efficiency of Education Project. In group discussion, determine what might be an appropriate economic analysis of this project. You may make reasonable assumptions about information which is not given in this case but which you determine is necessary to design your economic analysis. Be sure to identify clearly your cost and benefit streams. Suggest what might be appropriate sensitivity analyses. Prepare a flip chart and select a spokesperson to present the results of your discussion to the plenary session. The PAD extract:
Costa Rica: Equity and Efficiency of Education Project
Despite substantial increases in education spending – at all educational levels – education quality is still heterogeneous across the 20 educational regions in Costa Rica. In the 2002 national achievement tests regional scores in the 6th grade ranged from as low as 45% to as high as 81% in mathematics, and from 64% to 94% in language. High repetition and overage-rates also reflect education quality constraints. In 1999, 79% of primary school graduates and 48% of secondary school graduates had repeated at least one grade. School completion is alarmingly low: 78% of children in the primary cycle, 53% in grades 7-10, and 33% in secondary school (grades 11-12). These indicators are worse for the poor and rural populations. The project aims to reduce existing education quality gaps in rural education (including indigenous and Afro-descendent communities) and to improve the equity and efficiency in the allocation, administration and utilization of education sector resources. The project consists of three components. Component 1. Quality and equity of rural education. The objective of this component is to improve the targeting, education quality and organizational efficiency of rural education modalities in the country. The component empowers the technical unit of the Minis1
This case is based on the Project Appraisal Document for the Costa Rica Equity and Efficiency of Education Project, Report No. 28326CR dated March 4, 2005. The substance has been extensively abridged and changed. Readers should refer to the original PAD for information about the project.
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Costa Rica Case Study on Economic Analysis of Projects – Problem Set
try of Public Education responsible for rural education services to prepare subprojects guided by the Policy Activity Schedule, PAS. The unit will work closely with regional, community and school stakeholders. The PAS provides a menu of subproject areas with the following objectives: (i) improved rural education access, (ii) teaching staff development, (iii) pertinent pedagogical and academic modalities for rural contexts, (iv) improved targeting and monitoring of the impact of demand-based equity programs, and (v) improved capacity of institutional actors involved in delivering rural education services. This objective will be measured by the following indicators to be realized over a project horizon of 5 years: The number of repetitions without the project is estimated to be about 342,000; with the project the number of repetitions would be reduced by an estimated 106,000. Potential dropouts reduced by the project would be around 148,000 students (from a total of about 448,000 students who would drop out of the system by the year 2014 without the project, maintaining 2002 rates constant). An increment of 4% of the student population graduating from primary education with incremental yearly earnings of US$600, especially benefiting families from the two lowest income quintiles that are targeted by the project. Component 2. Improved equity of education services. This component will modernize and strengthen the capacity in the Ministry of Public Education to target adequately the provision of education services to regions and schools with low socio-economic and education indicators, including rural areas, while improving the administration, monitoring and evaluation of the equity programs supporting education demand of students from low income families. At present about 15% of the US$26 million annually spent on education demand subsidies is absorbed by students in the two highest income quintiles. These objectives will be measured by the following indicators: Improved regional targeting of the equity programs (scholarships and vouchers) that support education demand of low income families. Reduction of the 15% misallocation of education demand subsidies to the upper two quintiles by 5 percentage points over the life of the project. Integrated institutional structures for the administration of the demand-based equity programs evidenced by increased cost-effectiveness and reduced per beneficiary administrative costs of scholarships and vouchers. Timely and accurate information on the equity, quality and efficiency of education programs provided by the Ministry of Public Education. Component 3. Institutional development and efficiency. This component will increase the institutional capacity of the Ministry of Public Education, especially – but not limited to – those units related to the delivery of rural education services, as well as effective and efficient coordination, administration and external monitoring and evaluation of the annual operation plan subprojects and the project in general. Improved institutional capacity will be achieved through inter-department integration strategies and working alliances across central, regional and school organizations. Through training, technical assistance, administrative systems and work instruments, the component will strengthen the capacity of the Ministry staff (both pedagogical and administration units) to conduct participatory
Costa Rica Case Study on Economic Analysis of Projects – Problem Set
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sector diagnosis, plan strategically and implement, monitor and evaluate education programs. This objective will be measured by the following indicators: Successful integration of technical units of the Ministry of Public Education evidenced by high quality diagnosis, strategic and action plans and monitoring and evaluation of annual operation plan subprojects. Integrated institutional structures for the provision of formal rural education services. Information, communication and education strategies to disseminate and account for the results of the project. Satisfactory project coordination and fiduciary implementation including procurement and financial management. Project costs The following tables summarize the indicative costs of the project and the distribution of external and local financing. Table 1. Costa Rica Equity and Efficiency of Education Project Unit Costs and Cost of Intervention
Cost of the project US$70,000,000. (World Bank: US$30 million; Government: US$20 million during the project life and US$20 million as recurrent costs after the project ends US$413.00 US$672.00 US$600.00 Transportation: US$3.00 per student/year Scholarships: US$12.00 per student/year Bonos: US$32.50 per student/year School meals: US$60.00 per student/year Transportation: US$3.00 per student/year Scholarships: US$19.00 per student per year Bonos: US$32.50 per student/ year School meals: US$60.00 per student/year
Unit cost of a student in primary Unit cost of a student in secondary Average incremental earning of primary graduates over non-graduates Unit cost of education demand subsidies in primary school
Unit cost of education demand subsidies in secondary school
Table 2. Costa Rica Equity and Efficiency of Education Project Project Costs
Component Quality and equity of rural education Improved equity of education services Institutional development and efficiency Total project costs Front-end fee Total financing required Indicative Costs (US$M) 34.24 4.50 10.96 49.70 0.30 50.00 % of Total 68.48 9.00 21.92 99.40 0.60 100.00 Bank Financing (US$M) 20.99 4.06 4.65 29.70 0.30 30.00 % of Bank Financing 61.30 90.22 42.43 59.76 100.00 60.00