Abstract
This paper estimates and compares operating efficiencies of publicly owned associate degree granting colleges in the United States using data envelopment analysis (DEA) and stochastic frontier analysis (SFA). Comparisons are based on panel data for 698 colleges over four academic years, 2005-09. Included are both constant and variable returns to scale DEA estimates along with half and truncated normal inefficiency SFA estimates. The values 0.56 vs. 0.45 represent the largest mean DEA-SFA efficiency differential. DEA results indicate that 13% of colleges are fully (100%) efficient while SFA puts that percentage at only 1.7%. Comparisons of rankings based on efficiency performance generated a weak 0.65 correlation. Encouragingly, despite the financial turmoil initiated by the global crisis, the findings indicate that colleges have managed large efficiency gains over the four-year period. By 2008-09, DEA estimated efficiency increased to approximately 60%. Given continuing reductions in higher education public funding and increasing interest in public management reforms, the results should be of both managerial and public policy interest.
Highlights
This paper provides efficiency estimates and rankings for publicly owned and managed colleges in the U.S The analysis is based on panel data observations of 698 associate degree granting colleges operating over the four academic years, 2005-09, and includes, the potential efficiency impacts imposed by the global financial crisis
Over the four-year period, there was no empirical evidence to suggest that the financial crisis, recession, and accompanied higher education budget cuts had a noticeable impact on college operating efficiencies
The mean efficiency difference is largest when employing a variable returns to scale data envelopment analysis (DEA) model compared to a stochastic frontier analysis (SFA) model with a truncated inefficiency distribution
Summary
This paper provides efficiency estimates and rankings for publicly owned and managed colleges in the U.S The analysis is based on panel data observations of 698 associate degree granting colleges operating over the four academic years, 2005-09, and includes, the potential efficiency impacts imposed by the global financial crisis. DEA as a nonparametric approach and SFA as a parametric approach represent the two standard techniques for estimating technical efficiencies. Both have been applied to a wide variety of industries in evaluating and ranking the managerial and operating performance of forprofit firms, non-profit organizations, and government agencies. The focus on public colleges can provide potential insights into the possible efficiency effects arising from the financial crisis induced budget cuts. Those managerial responses should be of interest since it is unlikely for the pre-crisis public funding levels to return anytime in the near future. The final two sections of the paper present the empirical results and concluding remarks
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