Economics of Education Review 18 1999 269–277
Economies of scale and scope in higher education: a case of comprehensive universities
Rajindar K. Koshal
a,
, Manjulika Koshal
b
a
Department of Economics, Ohio University, Athens, OH 45701-2979, USA
b
Management Sciences, Ohio University, Athens, OH 45701-2979, USA Received 1 February 1998; accepted 1 July 1998
Abstract
This study empirically estimates a multiple-product fixed total cost function and output relationship for comprehensive universities in the United States. Statistical results based on data for 158 private and 171 public comprehensive univer-
sities suggest that there are both economies of scale and economies of scope in higher education. However, product- specific economies of scope do not exist for all output levels and activities [JEL I22].
1999 Elsevier Science Ltd.
All rights reserved.
Keywords: Scale; Scope economies; Education cost
1. Introduction
Cost functions provide important information for pro- ducers to achieve efficiency in production. In the case
of higher education, the question of economies of scale has been debated for over half of a century. Studies by
Hashimoto and Cohn 1997, Koshal and Koshal 1995, Nelson and Heverth 1992, de Groot et al. 1991, Clot-
felter et al. 1991, Getz et al. 1991, Hoenack 1990, Cohn et al. 1989, Brinkman 1990, Brinkman and Les-
lie 1986 and Friedman 1955 have conflicting con- clusions regarding economies of scale. Our study
explores different dimensions of economies of scale by estimating a multiple-product fixed total cost function. In
the 1970s, two studies Verry Layard, 1975; Verry Davies, 1976 also suggested the use of multiple-output
total cost functions. However, recent studies also suggest that institutions of higher education produce multiple
products Jimenez, 1986; Cohn et al., 1989; Cohn, Geske, 1990; Lloyd et al., 1993; Hashimoto Cohn,
1997; Johnes, 1997. In addition, the quality of edu-
Corresponding author. Tel.: 1 1-740-593-2038; Fax: 1 1- 740-593-0181; E-mail: koshalrohiou.edu
0272-775799 - see front matter
1999 Elsevier Science Ltd. All rights reserved. PII: S 0 2 7 2 - 7 7 5 7 9 8 0 0 0 3 5 - 1
cation, whether perceived or real, is different at different institutions Koshal Koshal, 1995. For example, one
year of education at Amherst College is not the same as one year of education at Huntington College. Therefore,
the cost and output relationship must make adjustments for various outputs and for quality variations among
institutions. In addition to the single-output method, these studies had other drawbacks. First, some used the
assumption that all the institutions in a cross-section analysis have the same objectives. It would be unreason-
able to assume that the goal for all universities is to pro- vide the same educational experience. One needs to
account for such differences in relating cost to outputs. Second, most of the studies did not test their results for
the presence of heteroscedasticity.
The purpose of this study is to estimate, for compre- hensive universities, the long run, multiple-product total
cost function by 1 controlling the quality of education for institutions that have similar objectives, and 2
applying various diagnostic checks to the estimated results.
270 R.K. Koshal, M. Koshal Economics of Education Review 18 1999 269–277
2. Model
