Abstract
In theory, not-for-profit organizations will be characterized by higher production costs per unit of output than for-profit producers of otherwise-identical goods/services, since profit maximization implies cost minimization per unit of output; breaking even does not imply cost minimization and, indeed, may imply inflated costs. We explore the empirical validity of this hypothesis in the context of higher education. Using 1996 data, we estimate multiproduct cost functions for 1,450 public, 1,316 private, not-for-profit, and 176 private, for-profit institutions of higher education in the United States. We fail to find a statistically significant difference between for-profit and not-for-profit private providers, but do find a statistically significant difference between private, not-for-profit institutions and public institutions.
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