Pricing Nonmarketed Outputs with an Application to Community Colleges

Abstract

We use the directional output distance function in cost space to recover absolute prices of nonmarket goods such that the ratio of prices equals the marginal rate of transformation of outputs in production. As such, the method is quite useful for valuing nonmarketed goods such as those produced by government entities such as the National Park Service, public schools and universities, and municipalities. We provide an empirical illustration of our method using fourteen Missouri community colleges that produced full-time equivalent students, certificates, associate’s degrees, and real spending on public service and auxiliary enterprises during the period 2005–2006 to 2011–2012.