Marginal Cost of a Public School Student Depends on the State Funding Formula
The marginal cost of a public education is important, as public schools must take all students in their area. The higher fixed costs are as a proportion of total costs, the more difficult it is for public schools to adjust spending in response to changes in enrollment, such as from school choice. To calculate West Virginia MC, we followed the example of Grecu and Lindsay (2006), who find that the MC of a public school student in SC was between 4,000 and 5,000, half of the total cost. Using WV data from the 2011-2012 through 2013-2014, we regressed enrollment, enrollment squared, and enrollment cubed on total costs to estimate marginal cost (controlling for other cost drivers). Using our estimated coefficients from enrollment (11,276), enrollment squared (-0.0672), and enrollment cubed (1.53e-06), we calculated the MC of a student at approximately 11,000. This is very close to average spending per pupil, which was 11,132. The high estimates of MC in our study is due to the highly centralized student funding system in WV. Our research highlights the importance of estimating cost functions for each institutional setting, since different state funding formulas are likely to yield very different measures of marginal cost.
Attachment: Cost_of_schooling_data.zip (27.4 KB)