Measuring Cost-EffectivenessFirst there are policies involving public expenditure. The
simplest cases are when the policy generates so much sav-
ings that the net cost to public funds is negative. One exam-
ple of this is England’s new service for Improving Access to
Psychological Therapies. It can be convincingly shown that
this improves well- being at no net cost to the government.^17
But we should not of course expect every policy to pay
for itself in full. One example of a policy with a positive net
cost is the US program called Moving to Opportunity. In
this ambitious project, poor families were offered housing
vouchers to enable them to live in less disadvantaged areas.
The economic effects turned out to be negligible (except on
children who moved at a young age).^18 But the well- being
effects were significant. After 4– 7 years, mental health in-
creased against controls by 0.16 standard deviations. After
15 years, happiness had increased by 0.2 standard devia-
tions for those who used the vouchers. This corresponds
to roughly 0.4 points of life- satisfaction (0– 10). Cumulated
over say 30 years at a real discount rate of 1.5% p.a., this
is roughly 10 point- years of life- satisfaction (0– 10). The net
cost per family was $3,700 (and even less per person).^19 So
the cost per additional point- year of happiness was under
$300— a real bargain.
Another example is a policy to provide cement floors to
peasant houses in Mexico.^20 Treatment households were of-
fered (and all accepted) cement floors; control households
were not. After 3 years, mothers were asked Are you satisfied
with your quality of life (1 = very satisfied or satisfied; 0 =
fair or unsatisfied). The mean for the control was 0.60 and
the effect of treatment was +0.11 points— equivalent to an
upward shift in mean z- score of roughly 0.22— or 0.4 points
of life- satisfaction. The cost was $150 per household. If the