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Appraising the Cost Efficiency of Higher Technological and Vocational Education Institutions in Taiwan Using the Metafrontier Cost-Function Model

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Abstract

This paper aims at appraising the cost efficiency and technology of institutions of higher technological and vocational education. Differing from conventional literature, it considers the potential influence of inherent discrepancies in output quality and characteristics of school systems for institutes of technology (ITs) and universities of technology (UTs). Moreover, to meet the purpose, this study conducted a seemingly unrelated regression—metafrontier cost-function model framework, which is extended from the classical metafrontier production function model and tailor-made for the theme. The econometric analysis utilizes a set of micro-level panel data that spans 6 years inclusive of 60 ITs and 29 UTs in Taiwan. The empirical results clearly reveal that the UTs own a superior cost-exploiting and -controlling capability for the operation of educational institutions to ITs’, given the quality dimension. Further, the estimated results of public and private schools for the UTs indeed do not vary by a wide margin, but this is not the case for the ITs. The statistical figures imply that the UTs are significantly more efficient than the ITs.

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Notes

  1. The phrase ‘blue ocean’ originated from a popular book written by W.C. Kim and R. Mauborgne published by the Harvard Business School Press in 2005 with ISBN 1591396190. The book stressed that the lasting success of a business comes not from battling competitors, but from creating ‘blue oceans’: untapped new market spaces ripe for growth. Such strategic moves—which the authors called ‘value innovation’—create powerful leaps in value that often render rivals obsolete for more than a decade. Relatively, the conventional cut-throat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. Accordingly, the ‘blue ocean’ could be briefly defined as a strategy of ‘winning by not competing for a lasting success’.

  2. To economize on the paper length, the related literature is tabulated. Please refer to Table 8 in the appendix for details.

  3. These include Cohn et al. (1989), De Groot et al. (1991), Lewis and Dundar (1995), Koshal and Koshal (1999), Koshal et al. (2001), Sav (2004), Fu et al. (2008), and Lenton (2008).

  4. The teaching cost includes administrative expenses, teaching, research and counselling expenses, student allowances and scholarship expenses, extended education and other teaching expenses, cooperative education expenses, other expenses, the board of directors’expenses, and financial expenses.

  5. Tao and Yuan (2005) analysed the optimal operating scale for the public elementary schools in Taipei county of Taiwan under the consideration of transportation costs. In the study, four input prices are constructed with the average concept, of which the teaching price is measured as the teaching cost divided by the number of classes. Nonetheless, in this paper, considering the characteristic of diversified educational systems, to use the number of classes as the denominator of the teaching price measure does not seem so appropriate for HTVEIs. We thus adopt the number of students as a substitution.

  6. The number of teachers indicates a total of full-time and adjunct teachers. To avoid an unreasonable count of the number of adjunct teachers, we refer to the ‘operating stipulation of upgrading IT to UT’, where a full-time teacher indicates a qualified full-time lecturer and above, while four adjunct teachers are counted as one full-time teacher.

  7. In 2001–2003, UTs’ graduates were mainly from graduate school and university, ITs’ graduates were mainly from university and junior college, while junior college graduates were from junior college.

  8. Referring to the ‘operating stipulation of upgrading IT to UT’, the number of students should be counted on the basis of the status of the student; the graduate student should be weighted by two in the count.

  9. The equivalent number of teachers represents a total of full-time and adjunct teachers. Nonetheless, to avoid an unreasonable count of the number of adjunct teachers, we refer to the ‘operating stipulation of upgrading ITs to UTs’: a full-time teacher indicates a qualified full-time lecturer and above, while four adjunct teachers are counted as one full-time teacher.

  10. The reason we treated the certificate ratio as a measure of quality is because for the HTVEIs, practical applied technology is just the core of educational administration and students’ study. In Taiwan, the job market has entered into an era of professional certificates and qualifications, and obtaining certificates and qualifications has already served as the basic threshold to get into professional jobs. Although some might feel that certificates or qualifications cannot represent professionalism, they at least denote a fundamental recognition that a student should be equipped for entering a professional practical domain; in the meantime, the enterprises in Taiwan usually also request their staff to obtain certificates. Hence, to obtain the certificates and qualifications is not a question about the willingness of students, but about necessity. The certificate ratio is naturally regarded as a dimension of measuring or representing students’ study achievement.

  11. Also could refer to De Groot et al. (1991), Glass et al. (1995), Fu et al. (2008), Kuo and Ho (2008), and Lenton (2008).

  12. The objective of standardization is to satisfy the homogeneity condition of the factor price of the cost function. We use the labour price as the numéraire. The standardized total cost is ‘total cost/labour price’. The standardized factor input price is ‘other factor input price/labour price’.

  13. Zellner (1962) proved the consistency and efficiency of SUR estimation.

  14. Also refers to Kumbhakar and Lovell (2000).

  15. Referring to Kumbhakar and Lovell (2000), it is adjusted as: \( \hat{\alpha }_{0}^{k} = [\alpha_{0}^{k} - E(\hat{u}_{it}^{k} )] + (\sqrt {2/\pi } )\hat{\sigma }_{u}^{k} \).

  16. In Battese et al. (2004), the parameters for the production function are estimated with MLE first and then used to calculate technical efficiency. While applying this to the cost function, the value of cost efficiency would be larger than unity. Thus, it is necessary to compute the reciprocal of the estimation.

  17. The figures that map the distribution of HEIs’ metafrontier cost-efficiency scores obtained by LP and QP estimations, respectively, are provided in Fig. 2 in the appendix for reference.

  18. According to the concept interpretation of Fig. 1 above, the figure 0.9382 denotes that the institution faces a 6.18 % (i.e. 1−0.9382 = 0.0618) margin of cost inefficiency; that is, 6.18 % of the actual cost ought to be saved.

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Acknowledgments

We are indebted to the anonymous referee’s valuable comments. Any remaining errors are the responsibility of the authors. We are also grateful for financial support from the National Science Council of Taiwan (ROC) (Grant No.: NSC 96-2415-H-415-010) enabling this research to be completed.

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Authors and Affiliations

  1. Department of Bio-industry and Agribusiness Administration, National Chiaya University, No. 300, Syuefu Rd, Chiayi, 60004, Taiwan, ROC

    Yung-Hsiang Lu

  2. Department of Management, Fo Guang University, No. 160, Linwei Rd, Jiaosi Shiang Township, Yilan County, 26247, Taiwan, ROC

    Ku-Hsieh Chen

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  1. Yung-Hsiang Lu
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Correspondence to Ku-Hsieh Chen.

Appendix

Appendix

See Tables 8 and 9 and Figs. 2, 3, 4, 5, 6.

Table 8 Literature adopting the metafrontier framework
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Table 9 The detailed indicators for the items of the HTVEIs evaluation
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Lu, YH., Chen, KH. Appraising the Cost Efficiency of Higher Technological and Vocational Education Institutions in Taiwan Using the Metafrontier Cost-Function Model. Res High Educ 54, 627–663 (2013). https://doi.org/10.1007/s11162-013-9292-9

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