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Estimation of Cost Efficiency of Australian Universities


  • Jocelyn Horne

    () (Department of Economics, Macquarie University)

  • Baiding Hu

    (Department of Economics, Macquarie University)


The purpose of this paper is to quantify the efficiency with which Australian universities utilise their teaching resources. The study estimates the cost efficiency of 36 universities over the period 1995-2002 using stochastic frontier analysis. The present study differs from previous cost and efficiency studies of Australian universities in two respects. First, it employs stochastic frontier analysis for the specification of a cost function for Australian universities which allows for the estimation of cost efficiency for each university under study. Second, a panel data set is utilised in the estimation of the cost function which enables not only comparisons of cost efficiency between universities but also an econometric testing of the assumption of an identical cost function for every university. The main finding is that universities are not operating efficiently as measured by cost efficiency and in relative terms. An efficiency ranking is derived and policy inferences are discussed.

Suggested Citation

  • Jocelyn Horne & Baiding Hu, 2005. "Estimation of Cost Efficiency of Australian Universities," Research Papers 0502, Macquarie University, Department of Economics.
  • Handle: RePEc:mac:wpaper:0502

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    References listed on IDEAS

    1. Bruce Chapman, 2001. "Australian Higher Education Financing: Issues for Reform," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 34(2), pages 195-204.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    3. Avkiran, Necmi K., 2001. "Investigating technical and scale efficiencies of Australian Universities through data envelopment analysis," Socio-Economic Planning Sciences, Elsevier, vol. 35(1), pages 57-80, March.
    4. Throsby, C D, 1986. "Cost Functions for Australian Universities," Australian Economic Papers, Wiley Blackwell, vol. 25(47), pages 175-192, December.
    5. Simon Marginson, 2001. "Trends in the Funding of Australian Higher Education," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 34(2), pages 205-215.
    6. Peter Abelson, 2005. "Surveying University Student Standards In Economics," Economic Papers, The Economic Society of Australia, vol. 24(2), pages 116-132, June.
    7. Hay, Donald A & Liu, Guy S, 1997. "The Efficiency of Firms: What Difference Does Competition Make?," Economic Journal, Royal Economic Society, vol. 107(442), pages 597-617, May.
    8. Stephen P. King, 2001. "The Funding of Higher Education in Australia: Overview and Alternatives," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 34(2), pages 190-194.
    9. Abbott, M. & Doucouliagos, C., 2003. "The efficiency of Australian universities: a data envelopment analysis," Economics of Education Review, Elsevier, vol. 22(1), pages 89-97, February.
    10. Melville L. McMillan & Debasish Datta, 1998. "The Relative Efficiencies of Canadian Universities: A DEA Perspective," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 485-511, December.
    11. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    12. Roger Carrington & Tim Coelli & D. S. Prasada Rao, 2005. "The Performance Of Australian Universities: Conceptual Issues And Preliminary Results," Economic Papers, The Economic Society of Australia, vol. 24(2), pages 145-163, June.
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    Cited by:

    1. Qin, Rui & Liu, Yan-Kui, 2010. "Modeling data envelopment analysis by chance method in hybrid uncertain environments," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 80(5), pages 922-950.
    2. Thomas Bolli & Mehdi Farsi, 2015. "The dynamics of productivity in Swiss universities," Journal of Productivity Analysis, Springer, vol. 44(1), pages 21-38, August.
    3. Angel García Correas & Manuel Larran Jorge, 2010. "Análisis de diferentes medidas de la eficiencia investigadora y factores explicativos en las universidades públicas españolas," Investigaciones de Economía de la Educación volume 5,in: María Jesús Mancebón-Torrubia & Domingo P. Ximénez-de-Embún & José María Gómez-Sancho & Gregorio Gim (ed.), Investigaciones de Economía de la Educación 5, edition 1, volume 5, chapter 36, pages 703-732 Asociación de Economía de la Educación.
    4. Fieger, Peter & Villano, Renato & Cooksey, Ray, 2015. "Efficiency of Australian TAFE and further education providers," MPRA Paper 64626, University Library of Munich, Germany.
    5. Marcel Clermont, 2016. "Effectiveness and efficiency of research in Germany over time: an analysis of German business schools between 2001 and 2009," Scientometrics, Springer;Akadémiai Kiadó, vol. 108(3), pages 1347-1381, September.
    6. Fieger, Peter & Villano, Renato & Cooksey, Ray, 2015. "Two dimensional efficiency measurements in Australian TAFE Institutes," MPRA Paper 64625, University Library of Munich, Germany.
    7. Shukhrat Kholmuminov & Robert E Wright, 2017. "Cost efficiency analysis of public higher education institutions in Uzbekistan," Working Papers 1704, University of Strathclyde Business School, Department of Economics.

    More about this item


    Cost efficiency; stochastic frontier analysis; higher education;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I20 - Health, Education, and Welfare - - Education - - - General

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