In this paper we discuss how comparative cost-effectiveness analyses can help inform policy in developing countries and the underlying methodological assumptions necessary for performing this kind of analysis using data gathered as part of rigorous impact evaluations. This paper does not suggest a single set of “correct” assumptions, because the assumptions adopted in a cost-effectiveness analysis should reflect the perspective of the intended user. Rather, we discuss the issues surrounding many of these assumptions, such as what discount rate to use or whether to include cash transfers as program costs, and make recommendations on which assumptions might be reasonable given the perspective of a policymaker allocating resources between different projects. Examples are drawn from the education field to illustrate key issues and focus on some specific applications to education. We hope this paper will contribute to the development of a more standard methodology for cost-effectiveness analyses and a better understanding of how these analyses can be created and used.
