Publicly vs. Privately Controlled Higher Education Costs: Panel Data Estimates

More so now than ever, budgetary problems and widespread reforms are generating questions regarding higher education costs among publicly controlled compared to privately controlled colleges and universities. Past studies have offered scale and scope estimates anchored in 1995 and earlier cross sectional data that could contain omitted variable biased. In contrast, this paper employs panel data spanning the 2005 through 2009 years to estimate a multiproduct cost function and scale and scope economies separately for public and private sector colleges and universities. The two-way fixed effects results indicate the presence of significant institutional and time effects. Overall, the findings suggest private institutions have the product specific cost advantage in expanding graduate and professional school education but the economies of scope and, therefore, joint production advantages rest with public colleges and universities. Also, there is evidence that the post recessionary pace of higher education cost increases have slowed down but the permanency of that is questionable.