Stochastic Cost Inefficiency Estimates and Rankings of Public and Private Research and Doctoral Granting Universities

Stochastic frontier cost and inefficiency estimates are provided for research and doctoral granting universities in the U.S. Separate sector estimates are produced for public and private non-profit universities. Panel data spanning four academic years, 2005-2009, is used to estimate underlying cost structures. Inefficiency is modeled as depending on institutionally specific environmental factors. Results indicate that public universities are on average more efficient than their private counterparts. The latter exhibit greater variability and when evaluated at the median inefficiencies there does not appear to be any statistically significant difference. Time varying inefficiency estimates point to public sector efficiency gains but private sector increasing inefficiencies. Interestingly, results indicate that increases in faculty tenure lead to efficiency improvements. Inefficiency rankings place private ivies among the most inefficient universities whereas public flagships are distributed throughout their sector rankings.