(Allocative) Efficiency of the Resources: A Geographical Analysis of Public and Private Schools of Nepal

Abstract

Allocative efficiency, using resources in optimal proportions based on input costs and their marginal contributions to output, is an emerging research construct, especially in resource constrained countries like Nepal. This study examines the allocative efficiency of educational resources across Nepal’s school system. Designed in a quantitative manner, this research employed a survey method. Utilizing empirical data of sources of school expenditure collected from a nationally representative sample of 650 schools, stratified by geographical regions (Himalayan, Hilly, and Terai), geographic location (urban and rural), and institutional type (public and private), the research evaluates the extent to which educational inputs are optimally allocated to maximize output. Key inputs assessed include expenditures on teaching personnel, management staff, support services, and instructional materials. By integrating exogenous variables such as region and school governance into the IOD (Indirect Output Distance) function, the study accounts for structural heterogeneity while estimating efficiency frontiers. A cost share derivative approach, derived from the logarithmic transformation of the IOD function, is employed as the central analytical framework to determine the theoretically optimal input shares. These optimal shares are then compared to observed cost allocations to identify overutilization or underutilization of resources. Positive deviations indicate overuse, while negative deviations signal resource underuse. Findings reveal considerable variation in allocative efficiency across regions and school types. Urban private schools in the Hilly region exhibit near-optimal resource allocation, whereas rural public schools in the Himalayan and Terai regions demonstrate significant inefficiencies, particularly due to disproportionate investments in labor and insufficient spending on learning materials. The study provides critical policy implications for cost-effective resource planning in low-income education systems, advocating for data-driven budgeting, input reallocation strategies, and decentralized school governance to promote both equity and efficiency in educational delivery.