School Quality, Operational Efficiency, and Optimal Size: An Analysis of Higher Education Institutions in Taiwan

Author: Tsu-Tan Fu(Department of Economics, Soochow University)

Vol.&No.：Vol. 56, No. 3
Date：September 2011
Pages：181-213
DOI：10.3966/2073753X2011095603007

Abstract：

As a result of low birth rates and over-expansion during past decades, a number of higher education institutions in Taiwan are currently confronted by problems of low enrollment rates and financial distress. The educational authority in Taiwan has also requested that these schools reduce their study body, shut down problematic departments, or consolidate with other institutions. An investigation of the efficiency and optimal size of schools is a vital research issue in contemporary higher education of Taiwan to provide objective information for resource reallocation to schools. This study employs the stochastic unit cost frontier to measure the cost efficiency of higher education institutions, and to investigate their optimal size by considering the heterogeneous school quality. The empirical results reveal a positive correlation between the optimal size of a school and school quality. We found that approximately 60 % of schools are identified as either over- or under-sized, and therefore, must adjust the number of students. The results also indicate that the cost reduction resulting from efficiency improvement will be higher than that from size adjustment. Therefore, managers of schools should focus specifically on efficiency improvement while considering the size adjustment.

Keywords：cost efficiency, higher education, economy of size, school quality

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