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Cost-effectiveness analysis is a framework for selecting interventions, commonly used in effective altruism. It was originally used in economics, particularly health economics.

Cost-effectiveness analysis estimates the ratio between the cost and the impact of the intervention. Interventions with a lower ratio are said to be more cost-effective, and are generally preferable. Some effective altruism organizations base their intervention recommendations at least partly on the basis of cost-effectiveness analysis.

Cost is generally measured in monetary terms, attempting to account for all costs of the intervention, including the cost of foregone interest. Effectiveness is measured in terms of some outcome, such as years of healthy life, or years spent in school. This is in contrast to cost-benefit analysis, where both the costs and the benefits of the intervention are assessed in monetary terms.

Cost-effectiveness analysis can be carried out on an average level (looking at the total cost and total impact of an intervention), or at the marginal level (examining the impact of an additional dollar).

Further reading

Cotton-Barratt, Owen. 2015. Project overview: problems of unknown difficulty.
An interesting application of cost-effectiveness analysis.

GiveWell. 2016. Our criteria for top charities.
An effective altruist organisation that uses cost-effectiveness analysis.

Wikipedia. 2016a. Cost-effectiveness analysis.
A discussion of other applications of the concept.

Wikipedia. 2016b. Cost–utility analysis.
A special case of cost-effectiveness analysis, where the impact is measured in terms of healthy life-years.