Policy responses to COVID-19 and the efficiency of Italian universities

In response to the COVID-19 pandemic, the Italian government increased public support for universities. While this influx of financial resources can partially mitigate some negative impacts of the pandemic on outputs, it also significantly increases inputs and costs for universities, potentially leading to a temporary loss of efficiency. This paper examines the policy effect of increased funding on universities’ efficiency in Italy. By focusing on both production and cost efficiency, we use a panel dataset spanning five years (2017–2021) and employ the recently developed Generalized True Random Effect stochastic frontier model. This model allows us to decompose overall inefficiency into persistent and transient components while accounting for heterogeneity across institutions. Our findings reveal that while production efficiency has remained relatively stable over the years, the post-COVID-19 era is characterized by a statistically significant decrease in cost efficiency. This result indicates a reversal of the positive efficiency trend observed in Italian universities in the years immediately prior to this period. Moreover, we identify a homogeneous reduction in cost efficiency across geographic regions, suggesting that the negative effect is unrelated to specific initial conditions or management decisions in the short run.