Today I attended a seminar given by Baiding Hu, 'Estimation of Cost Efficiency of Australian Universities' (co-authored with Jocelyn Horne). It uses stochastic frontier analysis to rank the cost efficiency of Australian universities. The costs considered were total spending less estimated research spending and the output measure was student numbers. The most efficient university maximises output per dollar of inputs and then other universities are ranked in terms of this. As studies of this type go this is not too bad and it does include a good bibliography and survey of earlier studies (they skip the recent, Carrington, R., T.J. Coelli and D.S.P. Rao 2005, “The Performance of Australian Universities: Conceptual Issues and Preliminary Results”, Economic Papers, 24, 145-163).
Among the conclusions were that regional universities tended to be the most cost-efficient universities and the ANU is the worst. My own La Trobe University is about mid-range.
I don't believe the conclusions of this study because, like all similar studies I have come across, there are basic measurement difficulties. For measuring teaching outputs one really needs to estimate the value-added to students as a consequence of education in terms of individual cultural or vocational skills. Just measuring student numbers is measuring an input not an output. At La Trobe University, for example, we take students who do not have the highest VCE entry scores but who, upon graduation, often go into jobs that are as well-paid as graduates from larger universities with higher entry scores. We add more value so, if our costs were the same, our efficiency would be higher in this case.
Earlier studies of cost efficiency also examine measures of research funding as research output when research funding is really an input to research not an output. For example, much Australian Research Council money is wasted - it is largely allocated on the basis of ex ante promises not ex post outcomes or measures of previous research success.
While I understand that, with budgetary stringency, emphasis is necessarily on costs, the issue of increasing revenues deserves emphasis. Increasing university incomes by exporting our vocational academic products to new markets is one approach but increased public funding is vital if we are to sustain arts and science programs that produce knowledge as a public good that is inevitably undervalued in markets. The latter is a politically difficult undertaking but this is no reason for not giving it the emphasis it deserves.