Stochastic frontier estimation of a CES cost function: the case of higher education in Britain
Economics of Education Review Volume 21, Number 1 ISSN 0272-7757 Publisher: Elsevier Ltd
Many estimates exist in the literature of multi-product cost functions estimated across a sample of institutions of higher education. Typically these have not employed the appropriate frontier estimation techniques. The cost functions usually estimated — such as the constant elasticity of substitution (CES) function — are highly non-linear, and the standard software packages do not allow stochastic frontier estimation in such cases. We derive and maximise the likelihood function associated with this problem, and hence construct measures of economies of scale and scope which obtain in British higher education. We use the half-normal residuals generated by the stochastic frontier estimation to construct measures of technical efficiency for each university in our sample.
Izadi, H., Johnes, G., Oskrochi, R. & Crouchley, R. Stochastic frontier estimation of a CES cost function: the case of higher education in Britain. Economics of Education Review, 21(1), 63-71. Elsevier Ltd.