Higher Education Costs and the Production of Extension

By Laband, David N.; Lentz, Bernard F. | Journal of Agricultural and Applied Economics, April 2005 | Go to article overview
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Higher Education Costs and the Production of Extension


Laband, David N., Lentz, Bernard F., Journal of Agricultural and Applied Economics


Do cost considerations justify the current structure of production of extension services in which one or more providers exists in virtually all of the contiguous U.S. states? Provision of extension services has sizable cost implications for the host institutions. Yet, to our knowledge, there has been virtually no analysis of the impact of extension on higher education costs. Using academic year 1995-1996 data, we estimate a multiproduct cost function for 1,445 public institutions of higher education in the United States, including 65 that provide extension services. We find evidence of significant economies of scale with respect to the provision of extension services but no evidence of significant economies of scope between the provision of extension and the production of research, undergraduate education, or graduate education.

Key Words: costs, extension services, higher education, multiproduct cost function

JEL Classifications: 122, L89

Historically, cooperative extension services have been provided by public universities across the United States, with funding provided from both federal and state appropriations. However, given the slow, steady erosion of political power resulting from the fact that agriculture is a long-term declining industry in the United States, both in terms of share of Gross Domestic Product and share of employment, there has been increasing discussion in recent years of privatizing the production/distribution of extension services. In this regard, several researchers have examined empirically the demand for and value of extension (Birkhaeuser, Evenson, and Feder; Dinar 1989; Huffman), while others have considered aspects of privatization and funding (Dinar 1992; Huffman and Just; Ingram; Just and Huffman; LeGouis; Schuh; Scwartz and Zijp; White and Havlicek).

Given the importance of extension within the agricultural sector, the relative merits of public versus private funding of extension services surely command our collective scrutiny and debate. Surprisingly, perhaps, a related aspect of the discussion of the optimal provision of extension services has been altogether missing: whether cost considerations justify the current structure of production in which one or more providers exists in virtually all of the contiguous U.S. states. Provision of extension services has sizable cost implications for the host institutions. Yet, to our knowledge, there has been virtually no analysis of the impact of extension on higher education costs. Among a host of relevant questions, one might consider the following:

* Are the costs of providing extension services fully recovered by universities from ear-marked public appropriations?

* To what extent is provision of extension services characterized by (dis)economies of scale?

* Are there cost synergies between extension and other outputs produced by public universities, such as research and teaching?

* What are the implications of any observed (dis)economies of scale and scope for the cost efficiency of the current structure of producing extension services and for the extent to which privatization might result in natural monopoly?

In this paper, we seek to provide an empirical starting point for addressing these and related questions pertaining to the impact of extension on higher education, by estimating a multi-product cost function for public universities with expenditures on extension added to the traditional product mix of undergraduate teaching, graduate teaching, and research. To our knowledge, however, there has been no previous investigation of the cost impact on institutions of higher education (IHEs) of providing extension services. Using academic year 1995-1996 data, we estimate a multi-product cost function for 1,445 public IHEs in the United States, including 65 that provide extension services. We find evidence of significant economies of scale with respect to the provision of extension services, but no evidence of statistically significant economies of scope between the provision of extension and the provision of research, undergraduate education, or graduate education.

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