Economic Cost Function Approach

In a nutshell, economic cost function tries to answer how much money per pupil a given school district needs to

produce a certain level of student performance. Here, statistical modeling determines the relationship between

a school district’s resources and the outcomes produced while controlling for factors that are inside or outside

local control. Those factors include economies of scale, prevailing wages, and students’ specific needs.

Computer simulations can estimate the cost of achieving selected student outcomes. Businesses frequently

use this complex statistical approach which relies on econometric techniques—cost functions—to estimate an

adequate level of resources to achieve desired outcomes. This model for

determining fiscal adequacy reflects personal and community values. Some group must decide how much a

community is willing to spend so that some or all students can reach a certain achievement level.

What does this approach tell us? For the most part, it quantifies what we may have already suspected.

Some research has shown that adequate spending levels are close to the median spending level in the state if

the researchers selected the average student proficiency levels.41 Yet as we have discussed, student needs

and per pupil spending vary greatly across the country for each state and school district, and average has

many levels.