The cost efficiency impact of the university operation fund on public universities in Taiwan

This study uses the stochastic frontier multiple-product cost function that is modeled after Battese and Coelli [Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production for panel data. Empirical Economics 20(2), 325-332.] in order to empirically measure the cost efficiency of the University Operation Fund (UOF) on Taiwan's public universities. The original purpose of the UOF's implementation was to reduce the government's financial burden by increasing cost efficiency in higher education institutions. By nature, the UOF differs from the traditional governmental budget regimes in three major respects. First of all, institutional operations and programs are no longer fully funded by government appropriations. Secondly, the universities can now retain surplus resources. Finally, the regulations on the use of funds raised by each institution itself are now less cumbersome. These differences provide universities with incentives for higher cost-efficiency and more active fund-raising. The empirical results from our study, which are based on panel data gathered from 34 public universities during the academic years 1992-2000, suggest that the adoption of the UOF has had a significantly negative impact on cost efficiency. (C) 2007 Elsevier Ltd. All rights reserved.