Stochastic Cost Frontier and Inefficiency Estimates of Public and Private Universities: Does Government Matter?

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Stochastic frontier analysis is used to estimate operating cost inefficiencies of public and private non-profit universities in the U.S. while also accounting for the possible effects arising from differences in the degree of government ownership. Using panel data for four academic years, 2005–2009, inefficiencies are estimated under two model specifications. Results indicate that public universities are more cost efficient when environmental factors influence cost frontiers but private universities are the cost efficient institutions when those factors are determinants of inefficiency. Increased government funding does matter and increases private sector inefficiency but offers some efficiency improvements among public universities. Following the global financial crisis, there is evidence indicating a considerable slowdown in the inefficiency growth among both public and private universities.



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