Stochastic estimation of cost frontier: evidence from Bangladesh

In the literature of higher education cost function study, enough knowledge is created in the area of economy scale in the context of developed countries but the knowledge of input demand is lacking. On the other hand, empirical knowledge in the context of developing countries is very meagre. The paper fills up the knowledge gap, estimating a quadratic cost frontier for the public universities in Bangladesh and thereby analysing economies of scale, economies of scope and input demand choice. The study is based on the panel data for Year 2002-2007. Findings show that there are economies of scale up to 350% of the mean output level in the public university, and the critical value of cost-minimizing demand for factor input labour is 48%. The paper shows that an economy of scale has relative advantage over cost-minimizing input choice in minimizing average production cost in the public university.