Budget Constrained Frontier Measures of Fiscal Equality and Efficiency in Schooling

In this paper we employ a cost indirect output distance function to model school district technology and measure performance. This function has the advantage of readily modeling multiple output production where that production is subject to a budget constraint. It also provides a natural measure of performance which is closely related to Fanell type measures of efficiency. We use this distance function to analyze the performance of a sample of Texas school districts, and to simulate various equalization schemes by varying the budget constraint faced by individual school districts. We find that the school districts in our sample could make considerable gains in value added by allocating their resources more efficiently. The simulated equalization schemes can also provide gains in value-added, but they typically require additional funds. Our technique could be employed more generally to analysis of public sector performance. In the education context, it could also be employed to develop state aid formulas which are linked to performance and account for variations in cost of personnel and special needs of the student body. Budget Constrained Frontier Measures of Fiscal Equality and Efficiency in Schooling S. Grosskopf Department of Economics Southern Illinois University Carbondale, IL 62901-4515 K. Hayes Department of Economics Southern Methodist University Dallas, TX 75275 L. Taylor Research Department Federal Reserve Bank of Dallas Dallas, TX 75202 W. Weber Department of Economics Southeast Missouri State University Cape Girardeau, MO 63701