The Production Characteristics of Local Public Education: A Multiple Product and Input Analysis

Since the seminal work of Baumol, Panzer and Willig [1], economists have become increasingly interested in incorporating the multifaceted nature of real-world production functions into their empirical analyses. Multiproducts, multiple inputs and the relaxation of the long-run equilibrium condition are some prime examples of major innovations in production modeling. An excellent example of this innovative literature is the study by Cowing and Holtmann [7] that focuses on the short-run production characteristics associated with the hospital services industry. Specifically, Cowing and Holtmann find evidence contrary to long-run equilibrium and that economies of scope are at least as important as economies of scale in the production of hospital services. Moreover, several empirical studies relating to the production characteristics of other goods and services such as higher education [6], crime prevention [9], electric utilities [15] and airlines [5] have provided ample evidence that these pertinent factors matter from both an econometric and a policy perspective. The literature concerning the production characteristics of primary and secondary education, however, has lagged behind in terms of incorporating more realism into the analysis. Typically, studies concerned with primary and secondary education production [2; 3; 13; 14] maintain that schools operate at a long-run equilibrium position and produce a single output with a single input (i.e. teachers), thus assuming away factors which these other industry studies have found to be significant. In fact, Jimenez [12] is the only study to date on local primary and secondary education production that is based on less restrictive assumptions. Several limitations are associated with his research however. Each of these limitations reduce the generality of his findings concerning the production characteristics of primary and secondary education. First, Jimenez employs a small sample to obtain estimates of various production characteristics, bringing into question the overall