What we talk about when we talk about costs


In our last post, we promised to talk more about what we mean when we say ‘costs’ in the context of ‘Preventonomics’. This is important because – as discussed last time – ‘costs avoided’ is how we will decide whether an intervention is good value for money.


The economists’ view on costs

Often, when people talk about costs, they mean money. But there is more to it. As people, we are embedded in a complex social system that includes not just formal services and institutions, but also the labour market where we sell our time to employers, other markets where we are consumers, and social relationships with our family and friends as well as wider society. Everything we do impacts on this web of connections.

When economists talk about ‘costs’ they are talking about all those impacts. For example, a child with persistent conduct problems is likely to need support from social services, additional educational help, may have high health care needs and may be involved with the criminal justice system at some point in their life. These are costs that can be easily captured because they are the same as expenditure on conduct problems. So these costs are measured directly in monetary terms.


Looking beyond the money

But there are other costs: children with persistent conduct problems often develop anti-social personality disorder in adulthood, and this is correlated with a host of problems. One important consequence is a higher risk of unemployment. This isn’t something that can be measured directly in terms of expenditure (except for benefit payments, but this is a topic for another post). Economists therefore need another way of measuring costs. In the case of unemployment, we try to find out how much the person WOULD have earned if they were the same except that they had not developed persistent conduct problems. In this way, we turn ‘unemployment’ into a ‘money’ figure.

So, what do we mean when we talk about costs? Economic costs in the context of ‘Preventonomics’ are – in principle – all the negative impacts of a childhood problem on all aspects of a child’s life and on society, converted into monetary terms. We use money because it is familiar, and it allows us to easily compare the size of impacts on different sectors or different people.


Costs in the ‘Preventonomics’ models

That being said, the ‘Preventonomics’ work is firmly rooted in evidence, and we can only consider those impacts where there is good evidence that a) the impact is caused by the problem we are trying to prevent and b) the intervention in question has been shown to reduce the impact.

There are also a few cost categories that we exclude from the outset because including them would be problematic. One of these categories is the value of additional life years gained or improved quality of life – a number that easily becomes so large that it overshadows any other impacts. Where there is evidence that the interventions impact on quality of life or mortality, we will describe this but not convert it to money.

One big part of our work for the Big Lottery Fund is providing tools for the local areas who will implement ‘A Better Start’. These economic models will allow them to calculate how much they can potentially save (or how much cost they can avoid) by implementing evidence-based interventions.

These models will have two parts: The first is a short-term model that looks at a typical local authority budget cycle and focusses on expenditure, to help with budget planning. The second takes a longer view and includes more types of costs, converted into money, to reflect the broader social savings the interventions may achieve.

This approach addresses one of the problems associated with prevention: expenditure on interventions from one budget may lead to savings in another. The same is true when we look at wider society; increased health care expenditure to provide effective interventions may mean that fewer people will be unemployed down the line. Our model will give an indication of the size of savings, and who is likely to benefit.


We will be back with a new post after Easter. In the meantime, follow @BigFirstYears and @Preventonomics on Twitter and use the hashtag #ABetterStart to join the conversation!