Economic Considerations in Estimating the Utility of Human Resource Productivity Improvement Programs

Three economic concepts (variable costs, taxes, and discounting) are applied and incorporated into the previous utility formulas proposed by Brogden (1946, 1949), Cronbach and Gleser (1965), and Schmidt, et al. (1979, 1982). The resulting utility model indicates that the previous formulas are deficient and can produce upwardly biased utility estimates. Empirical examples based on published research (e.g., Schmidt, et al., 1982) are presented indicating the substantial magnitude of the bias given realistic levels of variable costs, taxes, and discount rates. The present utility model is used to adjust for such bias and is shown to provide a more complete and precise utility definition. Implications for future research are discussed.