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A Methodology for Evaluating the Cost- Effectiveness of Alternative Management Tools in
Public-Sector Institutions: An Application to Public Education
Yaw M. Mensah, Rutgers University
Michael P. Schoderbek, Rutgers University
Robert H. Werner, Rutgers University
ABSTRACT. The shift towards performance budgeting and outcome measures for public-sector institutions in recent decades has created 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 identifing the most cost-effective management tools that also recognize the endogeneity between costs and outcomes. The model developed also allows us to examine the tradeoffs made by public-sector institutions with multiple stakeholders and conflicting objectives. Using public education institutions as the setting, we demonstrate empirically that the choices made constitute a trade-off between interests of various stakeholders, while seeking to optimize the core objectives of the institutions. Our empirical results are based on cost and outcome functions for public schools in New Jersey, and provide insight into the choices made by K-12 school district superintendents.
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