How transfer payments are treated in cost-effectiveness and cost-benefit analyses

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Abstract

In this article, the treatment of transfer payments, such as welfare and disability payments, is considered. A review of cost studies reveals little uniformity of approach to treatment of transfer payments. The authors propose a framework for treatment of transfer payments, which depends on the selection of study perspective. From the perspective of society (economic efficiency), only the administrative costs of transfer payments are correctly included in cost-benefit studies. Strategies for estimating the administrative costs of transfers are also discussed.

The authors are grateful to Thomas McGuire, Jose Escarce, and the other participants of the North-east Regional Research Symposium's 1994 annual meeting for their comments on an earlier draft of this paper.