The relative efficiency of charter schools: A cost frontier approach

Charters represent an expansion of public school choice, offering free, publicly funded educational alternatives to traditional public schools. One relatively unexplored research question concerning charter schools asks whether charter schools are more efficient suppliers of educational services than are traditional public schools. The potential relative efficiency advantage of charters vis-a-vis traditional publics is one of the mechanisms that supports the hypotheses that charters could improve performance for their students while using the same or fewer resources, and that the systemic effect of charters could lead to improved outcomes for traditional public students without requiring an increase in education sector resources.In this paper, we provide evidence as to the cost efficiency of charter schools relative to traditional public schools, and explore the extent to which those differences are attributable to differences in hiring and compensation practices, or to differences in the length of time a campus has been operating. We generate estimates of efficiency using a stochastic cost frontier approach. We estimate a translog stochastic cost frontier model using panel data for charter campuses and traditional public campuses in Texas over the five-year period 2005–2009.Our main findings suggest that charter schools are able to produce educational outcomes at lower cost than traditional public schools—probably because they face fewer regulations—but are not systematically more efficient relative to their frontier than are traditional public schools.

► Compare the relative efficiency of charter schools and traditional public schools using stochastic cost frontier method.
► When both school types are evaluated relative to a common cost frontier, charter schools are, on average, more efficient.
► When separate cost frontiers are estimated, charter schools have a lower frontier but, on average, are further from that frontier than traditional public schools are from their frontier.