Examining degree production and financial context at public master’s colleges and universities in the United States: a distance function approach

Using an output distance function as an analytic framework, stochastic frontier analysis (SFA), and a generalized true random effects (GTRE) model, this study examines the financial context of bachelor’s degree production efficiency among public master’s colleges and universities (MCUs) in the United States. Employing a GTRE model, degree production inefficiency is decomposed into transient (short-run) and persistent (long-run) components. This investigation finds that bachelor’s degree production is positively and non-linearly related to doctoral degree production. Persistent efficiency is positively related to tuition revenue, state appropriations, and Pell grant revenue and negatively related to federal grant and contract revenue. This study finds that bachelor’s degree production efficiency scores that take into account the financial context of public MCUs should be considered as “pure” efficiency scores, which differ from the “technical” efficiency scores that don’t adjust for the financial context. Using efficiency scores, this research allows for the ranking of public MCUs, which may be used to further identify best management practices.