Economies of scale in consolidation: Size and Indiana school corporations

Public funding of education in the United States has long been a source of idealistic goals constrained by the economic reality of state and local budgeting. Lofty ambitions and limited resources require officials to constantly assess methods and facilities in order to provide a maximum, or at least a sufficiently high, level of education given fixed funding. A method often cited for the potential to increase cost efficiencies is school corporation consolidation. The justification for consolidation is that it should benefit from a reduction of per pupil costs across increased enrollment by employing economies of scale. A considerable amount of research has focused on the effectiveness of school corporation consolidation as a method of reducing per pupil costs in various states, with results generally indicating the presence of scale economies. The majority of this research, however, employs inflexible functional forms rather than a flexible form, such as the translog, while failing to provide justification for this specification choice. A further complicating factor in school consolidation research is the need to balance budgetary and student achievement goals, which are often competing interests. In addressing existing research, this study shows that per pupil costs and student achievement are significantly influenced by the size of school corporation enrollment, and that the potential for economies of scale does exist. The functions are shown to be quadratic, indicating that an optimal enrollment size can be achieved. These results indicate that a large percentage of Indiana school corporations could benefit by readjusting enrollment to an optimal range of 2,000 to 4,000 students. Beyond this optimal range, however, significant diseconomies emerge for both per pupil costs and student performance. The discussion of school corporation consolidation must be considered in conjunction with other academic aims and political realities. A balance between costs, student achievement, social, and political considerations must be maintained by the school corporation to maximize the utility of its citizenry