Frontier and Envelopment Evaluations of University Graduation Efficiencies and Productivities: Elements for Performance Based Funding

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Universities are increasingly being pressured to increase student graduation rates. In the public sector, graduation rates are being integrated into performance based funding models. To some extent, private university rates have acted as benchmarks for public institutions. Thus, there is a managerial and public policies need to better understand productive efficiencies of both private and publicly owned universities. Thus, this paper provides stochastic frontier analysis (SFA) and data envelopment analysis (DEA) estimates and comparisons of graduation rate efficiencies and productivities across both sectors. Panel data is used for four academic years from 2005 to 2009, and includes possible effects and responses to the financial crisis. Although both sectors operate below 85% efficiency, results indicate private universities operate from 2 percentage points below to 7 to 12 percentage points above public institutions. Malmquist index results indicate overall productivity erosion for both ownership types. That is due, in part, to declines in managerial efficiencies and technological changes. However, total productivity regress is not substantially different in two sectors and there is some indication that all universities are moving toward productivity gain territory despite the underlying burdens imposed by the financial crisis.