Economies of scale in public education: An econometric analysis

This article investigates the sources of scale economies in the production of public education The relationship between the average cost of producing educational output and school characteristics including school and district size is estimated using a neoclassical cost function. The empirical analys is uses panel data from Utah school districts and estimates the function us ing the covariance and error component models after making necessary correc tions for heteroskedasticity and autocorrelation. The uncorrected fixed eff ects model generates a significant negative coefficient on district size in both the cost and expenditure functions; the coefficient on number of stud ents has the hypothesized sign brit is not significant iii either equation. After making various corrections for autocorrelation and heteroskedasticit y the coefficients have the correct signs and are significant in all equati ons. Thus, it is concluded that scale economies arise front both sources bu t that the evidence is stronger for district size.