Public Education Cost Frontier Models : Theory and an Application

We examine the cost structure of public schools in this paper, using frontier cost models that enable us to estimate sources of inefficiency. A two equation stochastic frontier model is presented that can be used to explain both cost and the sources of inefficiency. Using that model and data for public schools in Nebraska over the period 1989-92, we estimate cost frontiers for the districts. Estimated cost frontier information is then used in estimating school district need for purposes of computing state aid, illustrating an important potential application of such information