Efficiency Evaluations of U.S. Public Higher Education and Effects of State Funding and Pell Grants: Panel Data Estimates Using Two Stage Data Envelopment Analysis, 2004–2013 Academic Years

The Great Recession induced by the financial crisis accelerated the decades of declining state funding support for U.S. public higher education, while simultaneously bringing increased political pressures for demonstrating improvements in the operating efficiencies among all universities and colleges. The purpose of this paper is twofold. First, it provides estimates of those efficiencies and their changes over ten academic years, 2004 through 2013. Second, it provides estimates of the effects of state funding decreases on operating efficiencies, while also accounting for the large student enrollment recipients due to Pell Grant funds. A two stage data envelopment analysis is employed. First stage efficiencies enter the Tobit model in the second stage with state funding and Pell Grant measures as covariates. Panel data covers research, comprehensive, and associate institutions. Although the efficiency estimates are shown to vary widely across institutions, there is strong evidence that reversing state legislative decisions and increasing state funding would improve higher education efficiency.