Multi-product cost functions and the funding of tuition in UK universities

Abstract

A quadratic multi-product cost function is estimated for UK universities prior to the abolition of the binary divide. The arguments of the function include linear and interaction terms in undergraduate tuition, postgraduate tuition and research, and in each case these are separately identified for the (broadly defined) arts and sciences. The preferred specification is used to evaluate ray economies of scale, product-specific economies of scale and economies of scope. Estimates of average incremental costs are also provided. Results from OLS and stochastic frontier methods are compared.