Evaluating the efficiency of Italian public universities (2008–2011) in presence of (unobserved) heterogeneity

•We estimate efficiency in Italian higher education.•We show the importance of removing time-invariant individual effects from the model.•Maintaining State-level policies can be detrimental for overall efficiency.•Special interventions for universities in the South should be designed.•Evidence towards the increase of competitive policies among universities has shown.

In assessing the performance of universities, the most recent literature underlined that the efficiency scores may suffer from the presence of incidental parameters or time-invariant, often unobservable, effects that lead to biased efficiency estimates. To deal with this problem, we apply a procedure developed by [67]; for estimating the efficiency in Italian higher education through a multi-output parametric distance function. We show that models which do not consider unobservable heterogeneity tend to estimate divergent efficiency scores. We also study the determinants of efficiency; the findings provide a clue towards the expansion of pro-competitive policies in the Italian higher education sector, consistently with the interpretation that when market forces operate, there are benefits for university efficiency. When exploring differences in the performance of universities, by geographical areas, we claim that maintaining State-level policies can be detrimental for overall efficiency, and instead special interventions for universities in the South should be designed.