A TECHNIQUE FOR DETERMINING WHETHER RESIDENTIAL COMMUNITY CORRECTIONS ARE COST-EFFECTIVE ALTERNATIVES TO PROBATION AND INSTITUTIONALIZATION FOR ADULT AND JUVENILE OFFENDERS IS DEMONSTRATED. THE DISCUSSIONS OF COSTS AND BENEFITS ARE BASED ON EXAMPLES FROM HALFWAY HOUSES, PROBATED OFFENDER REHABILITATION AND TRAINING PROJECTS, AND JUVENILE RESIDENCES. STATISTICAL CONCEPTS GOVERNING THE ECONOMIC COSTS OF CRIME, THE LIKELIHOOD OF RECIDIVISM, AND THE USE OF RECIDIVISM TO MEASURE CORRECTIONS DEPARTMENT OUTPUTS ARE EXPLAINED. INPUT COSTS INCLUDE THE FOLLOWING: FIXED AND VARIABLE COSTS, SHORTRUN COSTS, VERY SHORTRUN COSTS, LONGRUN COSTS, 'OPPORTUNITY COSTS' (THE INCOME THE CAPITAL COULD HAVE EARNED IN AN ALTERNATIVE INVESTMENT), AND SOCIAL COSTS. THE DISCUSSION OF COST-BENEFIT MEASUREMENT INVOLVES USE OF EVALUATION CRITERIA. IT IS THEN CONCLUDED, BASED ON A STUDY OF JUVENILE TREATMENT FACILITIES, THAT FOR CLIENTS WHO HAVE NEVER BEEN INSTITUTIONALIZED, PROBATION IS MORE COST EFFECTIVE THAN COMMUNITY-BASED RESIDENTIAL TREATMENT. INSTITUTIONAL PLACEMENT IS MORE COST EFFECTIVE THAN COMMUNITY CORRECTIONS IN THE VERY SHORT RUN, BUT RESIDENTIAL CORRECTIONS PROJECTS ARE MOST COST EFFECTIVE IN BOTH THE SHORT RUN AND THE LONG RUN. TABLES PRESENT THE COST DATA ON WHICH THESE CONCLUSIONS ARE BASED. THE ROLE OF COST ANALYSIS IN PUBLIC POLICY DECISIONS IS THEN REVIEWED. FOOTNOTES CONTAIN REFERENCES. (GLR)