In the introduction, we walked through a stylized example of an MVPF calculation for a college scholarship program. Now we apply that same logic to a real-world example to see how the MVPF is calculated. This explanation is designed to give you a sense of the way that a researcher might calculate the MVPF of a policy they’ve studied.

The cost from increased enrollment of admitting an additional student to FIU is $11,403 per student admitted.

This data comes from the Delta Cost Project, a database constructed with information from the National Center for Education Statistics.

Students pay tuition that reduces the cost to the government by $3,184.

While students are in school, they have lower earnings. These lower earnings reduce tax revenue by $2,035, which increases the net cost of the policy to the government.

This calculation is based on the observed decline in earnings measured in Zimmerman 2014 and a calculation of the marginal tax and transfer rate based on estimates from the Congressional Budget Office.

The graph here shows how the net cost to the government varies with the age of the beneficiaries.

By the time the beneficiaries are 33 years old, they have paid back the initial cost to the government.

We do not observe incomes beyond age 33, but we can forecast those potential incomes by assuming that income profiles are proportional to the cross-sectional age distribution observed in the 2015 ACS, along with an assumption of 0.5% wage growth.

The graph shows the mean incomes by age for the 2015 ACS.

Next, we incorporate the observed earnings of those admitted to FIU by adding the estimated impacts.

Because the policy “paid for itself”, the MVPF is infinite regardless of how much individuals are willing to pay (WTP) for being admitted to FIU.

For completeness, we walk through our construction of WTP here.

Our baseline WTP measure is given by the additional amount of additional money the beneficiaries have as a result of the policy.

Individuals admitted to FIU on average pay an additional $2,900 in tuition costs.

This quantity is subtracted from their willingness to pay.