Estimating school efficiency: A comparison of methods using simulated data

Developing measures of school performance is crucial for performance-based school reform efforts. One approach to developing such measures is to apply econometric and linear programming techniques that have been developed to measure productive efficiency. This study uses simulated data to assess the adequacy of two such methods, Data Envelopment Analysis (DEA) and Corrected Ordinary Least Squares (COLS), for the purposes of performance-based school reform. Our results suggest that in complex data sets typical of education contexts simple versions of DEA and COLS do not provide adequate measures of efficiency. In data sets simulated to contain both measurement error and endogeneity, rank correlations between efficiency estimates and true efficiency values range from 0.104 to 0.240. In none of these data sets were either DEA and COLS able to place more than 31% of schools in their true performance quintile.  2001 Elsevier Science Ltd. All rights reserved. JEL classification: 121