IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v56y2019i5d10.1007_s00181-017-1398-z.html
   My bibliography  Save this article

School district consolidation policies: endogenous cost inefficiency and saving reversals

Author

Listed:
  • Mustafa U. Karakaplan

    (Georgetown University)

  • Levent Kutlu

    (Georgia Institute of Technology)

Abstract

Some education policy studies suggest that consolidation of public school districts saves resources. However, endogeneity in cost models would result in incorrect estimates of the effects of consolidation. We use a new stochastic frontier methodology to examine district expenditures while handling endogeneity. Using the data from California, we find that the effects of student achievement and education market concentration on expenditure per pupil are substantially larger when endogeneity is handled. Our findings are robust to concerns such as instrumental variable adequacy and spatial interactions. Our consolidation simulations indicate that failure to address endogeneity can result in unrealistic expectations of savings.

Suggested Citation

  • Mustafa U. Karakaplan & Levent Kutlu, 2019. "School district consolidation policies: endogenous cost inefficiency and saving reversals," Empirical Economics, Springer, vol. 56(5), pages 1729-1768, May.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:5:d:10.1007_s00181-017-1398-z
    DOI: 10.1007/s00181-017-1398-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-017-1398-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00181-017-1398-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. William Duncombe & John Yinger, 2007. "Does School District Consolidation Cut Costs?," Education Finance and Policy, MIT Press, vol. 2(4), pages 341-375, September.
    2. Borland, Melvin V. & Howsen, Roy M, 1992. "Student academic achievement and the degree of market concentration in education," Economics of Education Review, Elsevier, vol. 11(1), pages 31-39, March.
    3. Shawna Grosskopf & Kathy J. Hayes & Lori L. Taylor, 2009. "The Relative Efficiency Of Charter Schools," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(1), pages 67-87, March.
    4. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528.
    5. Tran, Kien C. & Tsionas, Efthymios G., 2013. "GMM estimation of stochastic frontier model with endogenous regressors," Economics Letters, Elsevier, vol. 118(1), pages 233-236.
    6. William Greene, 2003. "Simulated Likelihood Estimation of the Normal-Gamma Stochastic Frontier Function," Journal of Productivity Analysis, Springer, vol. 19(2), pages 179-190, April.
    7. Caroline Minter Hoxby, 2003. "School Choice and School Productivity. Could School Choice Be a Tide that Lifts All Boats?," NBER Chapters, in: The Economics of School Choice, pages 287-342, National Bureau of Economic Research, Inc.
    8. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
    9. Amsler, Christine & Prokhorov, Artem & Schmidt, Peter, 2016. "Endogeneity in stochastic frontier models," Journal of Econometrics, Elsevier, vol. 190(2), pages 280-288.
    10. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    11. Duncombe, William & Miner, Jerry & Ruggiero, John, 1995. "Potential cost savings from school district consolidation: A case study of New York," Economics of Education Review, Elsevier, vol. 14(3), pages 265-284, September.
    12. Grosskopf, Shawna & Hayes, Kathy J. & Taylor, Lori L. & Weber, William L., 2001. "On the Determinants of School District Efficiency: Competition and Monitoring," Journal of Urban Economics, Elsevier, vol. 49(3), pages 453-478, May.
    13. Dave E. Marcotte & Steven W. Hemelt, 2008. "Unscheduled School Closings and Student Performance," Education Finance and Policy, MIT Press, vol. 3(3), pages 316-338, July.
    14. O'Donnell, Christopher J. & Coelli, Timothy J., 2005. "A Bayesian approach to imposing curvature on distance functions," Journal of Econometrics, Elsevier, vol. 126(2), pages 493-523, June.
    15. Amsler, Christine & Prokhorov, Artem & Schmidt, Peter, 2017. "Endogenous environmental variables in stochastic frontier models," Journal of Econometrics, Elsevier, vol. 199(2), pages 131-140.
    16. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    17. Gronberg, Timothy J. & Jansen, Dennis W. & Taylor, Lori L., 2012. "The relative efficiency of charter schools: A cost frontier approach," Economics of Education Review, Elsevier, vol. 31(2), pages 302-317.
    18. Mustafa U. Karakaplan & Levent Kutlu, 2017. "Handling Endogeneity in Stochastic Frontier Analysis," Economics Bulletin, AccessEcon, vol. 37(2), pages 889-901.
    19. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    20. Meryem Duygun & Levent Kutlu & Robin C. Sickles, 2016. "Measuring productivity and efficiency: a Kalman filter approach," Journal of Productivity Analysis, Springer, vol. 46(2), pages 155-167, December.
    21. Millimet, Daniel L. & Collier, Trevor, 2008. "Efficiency in public schools: Does competition matter?," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 134-157, July.
    22. Glass, Anthony & Kenjegalieva, Karligash & Paez-Farrell, Juan, 2013. "Productivity growth decomposition using a spatial autoregressive frontier model," Economics Letters, Elsevier, vol. 119(3), pages 291-295.
    23. Tran, Kien C. & Tsionas, Efthymios G., 2015. "Endogeneity in stochastic frontier models: Copula approach without external instruments," Economics Letters, Elsevier, vol. 133(C), pages 85-88.
    24. Morakinyo Adetutu & Anthony Glass & Karligash Kenjegalieva & Robin Sickles, 2015. "The effects of efficiency and TFP growth on pollution in Europe: a multistage spatial analysis," Journal of Productivity Analysis, Springer, vol. 43(3), pages 307-326, June.
    25. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-533, May.
    26. Arthur Lewbel, 2012. "Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 67-80.
    27. Greene, William H., 1980. "Maximum likelihood estimation of econometric frontier functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 27-56, May.
    28. Caroline M. Hoxby, 2000. "Does Competition among Public Schools Benefit Students and Taxpayers?," American Economic Review, American Economic Association, vol. 90(5), pages 1209-1238, December.
    29. Izadi, Hooshang & Johnes, Geraint & Oskrochi, Reza & Crouchley, Robert, 2002. "Stochastic frontier estimation of a CES cost function: the case of higher education in Britain," Economics of Education Review, Elsevier, vol. 21(1), pages 63-71, February.
    30. Marvin E. Dodson & Thomas A. Garrett, 2004. "Inefficient Education Spending in Public School Districts: A Case for Consolidation?," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 270-280, April.
    31. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
    32. Greene, William H., 1980. "On the estimation of a flexible frontier production model," Journal of Econometrics, Elsevier, vol. 13(1), pages 101-115, May.
    33. Kutlu, Levent, 2017. "A constrained state space approach for estimating firm efficiency," Economics Letters, Elsevier, vol. 152(C), pages 54-56.
    34. Kutlu, Levent, 2010. "Battese-coelli estimator with endogenous regressors," Economics Letters, Elsevier, vol. 109(2), pages 79-81, November.
    35. Viliam Druska & William C. Horrace, 2004. "Generalized Moments Estimation for Spatial Panel Data: Indonesian Rice Farming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 185-198.
    36. Stevenson, Rodney E., 1980. "Likelihood functions for generalized stochastic frontier estimation," Journal of Econometrics, Elsevier, vol. 13(1), pages 57-66, May.
    37. Mustafa U. Karakaplan, 2017. "Fitting endogenous stochastic frontier models in Stata," Stata Journal, StataCorp LP, vol. 17(1), pages 39-55, March.
    38. Zanzig, Blair R., 1997. "Measuring the impact of competition in local government education markets on the cognitive achievement of students," Economics of Education Review, Elsevier, vol. 16(4), pages 431-441, October.
    39. Andrews, Matthew & Duncombe, William & Yinger, John, 2002. "Revisiting economies of size in American education: are we any closer to a consensus?," Economics of Education Review, Elsevier, vol. 21(3), pages 245-262, June.
    40. repec:wly:soecon:v:82:2:y:2015:p:580-597 is not listed on IDEAS
    41. Ryan Mutter & William Greene & William Spector & Michael Rosko & Dana Mukamel, 2013. "Investigating the impact of endogeneity on inefficiency estimates in the application of stochastic frontier analysis to nursing homes," Journal of Productivity Analysis, Springer, vol. 39(2), pages 101-110, April.
    42. Jesse Rothstein, 2007. "Does Competition Among Public Schools Benefit Students and Taxpayers? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2026-2037, December.
    43. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    44. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    45. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Danuse Nerudova & Marian Dobranschi, 2019. "Alternative method to measure the VAT gap in the EU: Stochastic tax frontier model approach," PLOS ONE, Public Library of Science, vol. 14(1), pages 1-38, January.
    2. Bourjade, Sylvain & Muller-Vibes, Catherine, 2023. "Optimal leasing and airlines' cost efficiency: A stochastic frontier analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 176(C).
    3. Rajko Tomaš, 2022. "Measurement of the Concentration of Potential Quality of Life in Local Communities," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 79-109, August.
    4. Kutlu, Levent & Nair-Reichert, Usha, 2022. "Executive compensation and the potential for additional efficiency gains: Evidence from the Indian manufacturing sector," Economic Modelling, Elsevier, vol. 114(C).
    5. Xu, Mengmeng & Tan, Ruipeng & He, Xinju, 2022. "How does economic agglomeration affect energy efficiency in China?: Evidence from endogenous stochastic frontier approach," Energy Economics, Elsevier, vol. 108(C).
    6. Guarini, Giulio & Laureti, Tiziana & Garofalo, Giuseppe, 2020. "Socio-institutional determinants of educational resource efficiency according to the capability approach: An endogenous stochastic frontier analysis," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    7. Mohammad Ariful Islam & Seiichi Fukui, 2018. "The influence of share tenancy contracts on the cost efficiency of rice production during the Bangladeshi wet season," Economics Bulletin, AccessEcon, vol. 38(4), pages 2431-2443.
    8. Ligia Alba Melo-Becerra & María Teresa Ramírez-Giraldo, 2023. "Transport infrastructure and technical efficiency in a panel of countries: accounting for endogeneity in a stochastic frontier model," SN Business & Economics, Springer, vol. 3(1), pages 1-18, January.
    9. Dibyendu Maiti & Chiranjib Neogi, 2024. "Endogeneity-corrected stochastic frontier with market imperfections," Empirical Economics, Springer, vol. 67(3), pages 1149-1183, September.
    10. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2020. "A spatial stochastic frontier model with endogenous frontier and environmental variables," European Journal of Operational Research, Elsevier, vol. 286(1), pages 389-399.
    11. Mustafa U. Karakaplan & Levent Kutlu, 2019. "Estimating market power using a composed error model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(4), pages 489-510, September.
    12. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    13. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2019. "A time-varying true individual effects model with endogenous regressors," Journal of Econometrics, Elsevier, vol. 211(2), pages 539-559.
    14. Francesco Vidoli & Fabio Quintiliani & Giorgio Ivaldi & Giorgia Marinuzzi & Francesco Porcelli & Walter Tortorella, 2024. "Do municipal unions improve cost efficiency for the social function? A quasi‐experimental endogenous stochastic frontier approach," Journal of Regional Science, Wiley Blackwell, vol. 64(2), pages 308-332, March.
    15. Lungelo P. Cele & Thia Hennessy & Fiona Thorne, 2023. "Regional technical efficiency rankings and their determinants in the Irish dairy industry: A stochastic meta‐frontier analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 727-743, July.
    16. Wang, Luojia & Du, Kerui & Shao, Shuai, 2024. "Transportation infrastructure and carbon emissions: New evidence with spatial spillover and endogeneity," Energy, Elsevier, vol. 297(C).
    17. Mengmeng Xu & Ruipeng Tan, 2024. "Digital economy as a catalyst for low-carbon transformation in China: new analytical insights," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-14, December.
    18. Mohammad I. Al Masud & Levent Kutlu, 2018. "US Bank Efficiency and FED Activity," Economics Bulletin, AccessEcon, vol. 38(4), pages 2047-2059.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    2. Levent Kutlu & Ran Wang, 2018. "Estimation of cost efficiency without cost data," Journal of Productivity Analysis, Springer, vol. 49(2), pages 137-151, June.
    3. Orea, Luis, 2019. "The Econometric Measurement of Firms’ Efficiency," Efficiency Series Papers 2019/02, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    4. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2019. "A time-varying true individual effects model with endogenous regressors," Journal of Econometrics, Elsevier, vol. 211(2), pages 539-559.
    5. Kutlu, Levent & Tran, Kien C. & Tsionas, Mike G., 2020. "A spatial stochastic frontier model with endogenous frontier and environmental variables," European Journal of Operational Research, Elsevier, vol. 286(1), pages 389-399.
    6. Glass, Anthony J. & Kenjegalieva, Karligash & Sickles, Robin C. & Weyman-Jones, Thomas, 2018. "The Spatial Efficiency Multiplier and Common Correlated Effects in a Spatial Autoregressive Stochastic Frontier Model," Working Papers 18-003, Rice University, Department of Economics.
    7. Timothy J. Gronberg & Dennis W. Jansen & Mustafa U. Karakaplan & Lori L. Taylor, 2015. "School district consolidation: Market concentration and the scale‐efficiency tradeoff," Southern Economic Journal, John Wiley & Sons, vol. 82(2), pages 580-597, October.
    8. Subal C. Kumbhakar & Christopher F. Parmeter & Valentin Zelenyuk, 2022. "Stochastic Frontier Analysis: Foundations and Advances I," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 8, pages 331-370, Springer.
    9. Massimo Del Gatto & Adriana Di Liberto & Carmelo Petraglia, 2011. "Measuring Productivity," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 952-1008, December.
    10. Mamonov Mikhail E. & Parmeter Christopher F. & Prokhorov Artem B., 2022. "Dependence modeling in stochastic frontier analysis," Dependence Modeling, De Gruyter, vol. 10(1), pages 123-144, January.
    11. Ali M. Oumer & Amin Mugera & Michael Burton & Atakelty Hailu, 2022. "Technical efficiency and firm heterogeneity in stochastic frontier models: application to smallholder maize farms in Ethiopia," Journal of Productivity Analysis, Springer, vol. 57(2), pages 213-241, April.
    12. Kutlu, Levent, 2018. "A distribution-free stochastic frontier model with endogenous regressors," Economics Letters, Elsevier, vol. 163(C), pages 152-154.
    13. Mustafa U. Karakaplan & Levent Kutlu, 2019. "Estimating market power using a composed error model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(4), pages 489-510, September.
    14. Sickles, Robin C. & Song, Wonho & Zelenyuk, Valentin, 2018. "Econometric Analysis of Productivity: Theory and Implementation in R," Working Papers 18-008, Rice University, Department of Economics.
    15. Centorrino, Samuele & Pérez-Urdiales, María, 2023. "Maximum likelihood estimation of stochastic frontier models with endogeneity," Journal of Econometrics, Elsevier, vol. 234(1), pages 82-105.
    16. Horrace, William C. & Rothbart, Michah W. & Yang, Yi, 2022. "Technical efficiency of public middle schools in New York City," Economics of Education Review, Elsevier, vol. 86(C).
    17. Kutlu, Levent, 2017. "A constrained state space approach for estimating firm efficiency," Economics Letters, Elsevier, vol. 152(C), pages 54-56.
    18. Vidoli, Francesco & Cardillo, Concetta & Fusco, Elisa & Canello, Jacopo, 2016. "Spatial nonstationarity in the stochastic frontier model: An application to the Italian wine industry," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 153-164.
    19. Federico Belotti & Giuseppe Ilardi & Andrea Piano Mortari, 2019. "Estimation of Stochastic Frontier Panel Data Models with Spatial Inefficiency," CEIS Research Paper 459, Tor Vergata University, CEIS, revised 30 May 2019.
    20. Levent Kutlu, 2022. "Spatial stochastic frontier model with endogenous weighting matrix," Empirical Economics, Springer, vol. 63(4), pages 1947-1968, October.

    More about this item

    Keywords

    Educational finance; Expenditures; Costs; Consolidation; Economies of scale; Efficiency; Endogeneity;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:56:y:2019:i:5:d:10.1007_s00181-017-1398-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.