Do Institutions Matter for University Cost Efficiency? Evidence from Germany

Efficiency analyses on higher education institutions have so far primarily focussed on the identification of inefficiency and less on the explanation of differences in efficiency performance. In this article, we study the impact of institutional factors on the efficiency of 67 publicly financed German universities for the years 1998–2003. We present some evidence that university costs and outputs are correlated with institutional settings such as the management structure of universities or the universities’ staff body. Furthermore, econometric evidence from a single-stage stochastic frontier model (based on a cost function) suggests that universities which are located in states with a comparatively liberal university legal framework are more efficient than those universities operating under more restrictive state regulation. (JEL codes: l28, L32, H72)