Persistence of Cost Inefficiency Among Schools: A Myth or Reality?

Abstract

Inefficiency persistence is often ignored in empirical studies that assess school efficiency levels. Using longitudinal data on state and state-dependent private schools from 62 New Zealand territories, a dynamic random-effect stochastic frontier model is employed to obtain the magnitude of inefficiency persistence along with the measure of cost efficiency estimates. The results show that a naive non-dynamic model incorrectly shows New Zealand schools to be highly cost-efficient in short run. However, the dynamic model exposes the fact that New Zealand state schools face high persistence in cost inefficiency, which is limiting their ability to provide cost-efficient schooling in long run. Furthermore, an estimated 9% of the annual state school funding is lost due to the persistence in cost inefficiency. The findings of this study indicate that cost inefficiency among New Zealand schools appears to be long run, requiring significant policy change from the national government.