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School district consolidation policies: endogenous cost inefficiency and saving reversals

Author

Listed:
  • Mustafa U. Karakaplan

    (Georgetown University)

  • Levent Kutlu

    (Georgia Institute of Technology)

Abstract

Some education policy studies suggest that consolidation of public school districts saves resources. However, endogeneity in cost models would result in incorrect estimates of the effects of consolidation. We use a new stochastic frontier methodology to examine district expenditures while handling endogeneity. Using the data from California, we find that the effects of student achievement and education market concentration on expenditure per pupil are substantially larger when endogeneity is handled. Our findings are robust to concerns such as instrumental variable adequacy and spatial interactions. Our consolidation simulations indicate that failure to address endogeneity can result in unrealistic expectations of savings.

Suggested Citation

  • Mustafa U. Karakaplan & Levent Kutlu, 2019. "School district consolidation policies: endogenous cost inefficiency and saving reversals," Empirical Economics, Springer, vol. 56(5), pages 1729-1768, May.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:5:d:10.1007_s00181-017-1398-z
    DOI: 10.1007/s00181-017-1398-z
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    2. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    3. Mohammad Ariful Islam & Seiichi Fukui, 2018. "The influence of share tenancy contracts on the cost efficiency of rice production during the Bangladeshi wet season," Economics Bulletin, AccessEcon, vol. 38(4), pages 2431-2443.
    4. Rajko Tomaš, 2022. "Measurement of the Concentration of Potential Quality of Life in Local Communities," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 79-109, August.
    5. Kutlu, Levent & Nair-Reichert, Usha, 2022. "Executive compensation and the potential for additional efficiency gains: Evidence from the Indian manufacturing sector," Economic Modelling, Elsevier, vol. 114(C).
    6. Xu, Mengmeng & Tan, Ruipeng & He, Xinju, 2022. "How does economic agglomeration affect energy efficiency in China?: Evidence from endogenous stochastic frontier approach," Energy Economics, Elsevier, vol. 108(C).
    7. Mohammad I. Al Masud & Levent Kutlu, 2018. "US Bank Efficiency and FED Activity," Economics Bulletin, AccessEcon, vol. 38(4), pages 2047-2059.
    8. Ligia Alba Melo-Becerra & María Teresa Ramírez-Giraldo, 2023. "Transport infrastructure and technical efficiency in a panel of countries: accounting for endogeneity in a stochastic frontier model," SN Business & Economics, Springer, vol. 3(1), pages 1-18, January.
    9. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2019. "A time-varying true individual effects model with endogenous regressors," Journal of Econometrics, Elsevier, vol. 211(2), pages 539-559.
    10. Guarini, Giulio & Laureti, Tiziana & Garofalo, Giuseppe, 2020. "Socio-institutional determinants of educational resource efficiency according to the capability approach: An endogenous stochastic frontier analysis," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    11. Dibyendu Maiti & Chiranjib Neogi, 2020. "Endogeneity Corrected Stochastic Frontier with Market Imperfections," Working papers 313, Centre for Development Economics, Delhi School of Economics.
    12. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2020. "A spatial stochastic frontier model with endogenous frontier and environmental variables," European Journal of Operational Research, Elsevier, vol. 286(1), pages 389-399.
    13. Mustafa U. Karakaplan & Levent Kutlu, 2019. "Estimating market power using a composed error model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(4), pages 489-510, September.
    14. Lungelo P. Cele & Thia Hennessy & Fiona Thorne, 2023. "Regional technical efficiency rankings and their determinants in the Irish dairy industry: A stochastic meta‐frontier analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 727-743, July.

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    More about this item

    Keywords

    Educational finance; Expenditures; Costs; Consolidation; Economies of scale; Efficiency; Endogeneity;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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