A Methodology for Evaluating the Cost-Effectiveness of Alternative Management Tools in Public-Sector Institutions: Application to Public Education

51 Pages Posted: 7 May 2006

See all articles by Yaw M. Mensah

Yaw M. Mensah

Rutgers Business School - Newark & New Brunswick

Michael P. Schoderbek

Rutgers, The State University of New Jersey - Accounting & Information Systems

Robert H. Werner

Rutgers Business School

Date Written: January 2007

Abstract

This study introduces a methodology for evaluating the cost-effectiveness of alternative management tools in public institutions with an application to public education. The shift towards performance budgeting and outcome measures for public-sector institutions in recent decades creates a need to formally link inputs consumed and outcomes achieved. Given the inherent problems of cost accounting systems in public-sector institutions, we propose a statistical approach to identifying the most cost-effective management tools. Our basic approach proposes the estimation of both an outcome function and a cost function and relating the two coefficients from the regressions to determine the most cost-effective choice of management tools. As an empirical demonstration of the method, we apply both ordinary least squares and two-stage least squares to estimate such outcome and cost functions for public schools in New Jersey. Overall, the empirical results suggest that the methodology proposed has the potential to contribute to the improved management of public institutions.

Keywords: Cost-Effectiveness, Management tools, Public sector institutions, Productivity

JEL Classification: C31, I22, M41

Suggested Citation

Mensah, Yaw M. and Schoderbek, Michael P. and Werner, Robert H., A Methodology for Evaluating the Cost-Effectiveness of Alternative Management Tools in Public-Sector Institutions: Application to Public Education (January 2007). Available at SSRN: https://ssrn.com/abstract=899401 or http://dx.doi.org/10.2139/ssrn.899401

Yaw M. Mensah (Contact Author)

Rutgers Business School - Newark & New Brunswick ( email )

100 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.4369 (Phone)
732.445.0351 (Fax)

HOME PAGE: http://business.rutgers.edu

Michael P. Schoderbek

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

96 New England Avenue, #18
Summit, NJ 07901-1825
United States
732-445-4438 (Phone)
732-445-3201 (Fax)

Robert H. Werner

Rutgers Business School ( email )

94 Rockafeller Road
Piscataway, NJ 08854
United States
732.445.4441 (Phone)
732.445.3755 (Fax)

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