Scale and scope economies for higher education institution

The primary purpose of this study is to estimate scale and scope economies for the teaching and research outputs produced by ninety four American higher education institutions (HEIs). The HEIs include Comprehensive, Research, and Doctoral institutions. The data on these HEIs is at the departmental level for the 1991-92 academic year and the 1992 fiscal year. Based on the theory of contestable markets a flexible cost quadratic function is assumed to represent the multiple output producing behavior of HEIs. Very few predecessor studies have taken this approach to analyze the cost structure of HEIs.;The cost of teaching, research, and service is modeled using the three major outputs produced by these HEIs: undergraduate and graduate full time equivalent enrollments, and sponsored research expenditures. Average faculty compensating is used as the input price because HEIs are assumed to be labor intensive firms. The data is aggregated into seven discipline groupings because data for certain departments formed a very small sample. Ridge regression is used to estimate the specified HEI cost function because multicollinearity is present in the data sample.;Ray and product specific economies of scale and global and product specific economies of scope are estimated for several levels of all outputs. The existence of considerable economies of scale and scope for HEIs is detected. Economies of scope exhaust at very high levels of production. These results indicate that jointly producing teaching and research in HEIs is significantly less costly than producing them separately.