Abstract
Stochastic frontier analysis is used to estimate operating cost inefficiencies of public and private non-profit universities in the U.S. while also accounting for the possible effects arising from differences in the degree of government ownership. Using panel data for four academic years, 2005–2009, inefficiencies are estimated under two model specifications. Results indicate that public universities are more cost efficient when environmental factors influence cost frontiers but private universities are the cost efficient institutions when those factors are determinants of inefficiency. Increased government funding does matter and increases private sector inefficiency but offers some efficiency improvements among public universities. Following the global financial crisis, there is evidence indicating a considerable slowdown in the inefficiency growth among both public and private universities.
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Notes
Outside of education, empirical applications of stochastic frontier analysis is not new. Production frontiers and efficiencies have been estimated, e.g., for the U.S. primary metals industry (Aigner et al. 1977), U.S. dairies (Kumbhakar et al. 1991), India paddy farms (Battese and Coelli 1992 and 1995), international airlines (Coelli et al. 1999), and U.S. electricity (Knittel 2002). Cost frontier research has been applied, e.g., to the U.S. airlines industry (Kumbhakar 1991), insurance industry (Cummins and Weiss 1993), hospital care (Bradford et al. 2001), banking (Huang and Wang 2001), crime prevention (Barros and Alves 2005), and English football (Barros and Leach 2007).
Evaluations of the translog produced estimates whereby more than half of the coefficients failed to meet any reasonable level of statistical significance and output and wage variables carried large negative cost effects that raised additional doubts concerning the appropriateness of the specification. Moreover, in one translog model scenario it was not possible to achieve convergence. In another model scenario, the likelihood ratio test could not reject the Cobb-Douglas over the translog.
Chow tests on the OLS estimates produced statistically significant F values that confirmed structural differences in the public and private sectors: F(6, 2204) = 20.82 and F(9,2200) = 33.23 with and without environmental factors, respectively. Following the cost frontier implementations, structural differences were again confirmed: with 16 df, χ2 = 51 and 39 with and without environmental factors, respectively. The conclusion of structural differences supports previous findings (e.g., beginning with Cohn et al. (1989) and subsequently Koshal and Koshal (1999), Sav (2004), and Lenton (2008), among others).
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Sav, G.T. Stochastic Cost Frontier and Inefficiency Estimates of Public and Private Universities: Does Government Matter?. Int Adv Econ Res 18, 187–198 (2012). https://doi.org/10.1007/s11294-012-9353-4
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DOI: https://doi.org/10.1007/s11294-012-9353-4