Measuring School Efficiency Using Cost Functions

United States public schools in the first decade of the twenty-first century are faced with increasing demands for improving performance; simultaneously, government budgets are stagnant or shrinking. Thus it is particularly important to consider ways in which schools and school districts can use their resources effectively. Although much of the research linking resources and performance focuses on estimating a production function for education, using a cost-function framework holds considerable appeal for the investigation of school performance and efficiency. Perhaps most important is that cost functions can be specified to include multiple-output measures simultaneously, allowing us to estimate the efficiency of schools without having to assume that a single test score or other measure, fully captures the product of a school, as production functions typically require. This chapter develops and explores the estimation of school efficiency using school-level cost functions. The aim is to identify ways to minimize the cost of schools, which implies identifying schools that can achieve their performance levels at lower costs