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Multiproduct Cost Function Estimation for American Higher Education: Economies of Scale and Scope

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  • Balazs Varadi

    ()
    (Department of Political Science Central European University)

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    Abstract

    Following Cohn, Rhine and Santos (1989) and Koshal and Koshal (1999),we use American data, i.e., a matched data set of 730 private and 820 public colleges and universities, to estimate multi-product cost functions in higher education. We use federal research grants as a proxy for research output and independent rankings of colleges as a quality proxy. We found that private and public schools have different cost functions. We obtained robust cost functions for private institutions. In those schools, economies of scope are present throughout. There are also economies of scale to a point that is above the size of an average private institution. The marginal cost of educating undergraduates is decreasing, while that of graduate students is increasing. The value of the endowment of private institutions is positively correlated with their costs.

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    Bibliographic Info

    Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0111.

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    Length: 30 pages
    Date of creation: Dec 2001
    Date of revision:
    Handle: RePEc:has:discpr:0111

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    1. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.
    2. Goudriaan, Rene & de Groot, Hans, 1993. "State regulation and university behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 309-318, April.
    3. Dundar, Halil & Lewis, Darrell R., 1995. "Departmental productivity in American universities: Economies of scale and scope," Economics of Education Review, Elsevier, vol. 14(2), pages 119-144, June.
    4. Rilstone, Paul, 1991. "Some Monte Carlo Evidence on the Relative Efficiency of Parametric and Semiparametric EGLS Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(2), pages 179-87, April.
    5. Michael Rothschild & Lawrence J. White, 1991. "The University in the Marketplace: Some Insights and Some Puzzles," NBER Working Papers 3853, National Bureau of Economic Research, Inc.
    6. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
    7. Estelle James, 1978. "Product Mix and Cost Disaggregation: A Reinterpretation of the Economics of Higher Education," Journal of Human Resources, University of Wisconsin Press, vol. 13(2), pages 157-186.
    8. de Groot, Hans & McMahon, Walter W & Volkwein, J Fredericks, 1991. "The Cost Structure of American Research Universities," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 424-31, August.
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