captures the main features of the problem and has the great advantage that it can be implemented with readily available data.

In combination, a comfort standard and a cost index reveal how much households in each community would have to spend to meet the standard, based on factors outside their control. In principle, this information also could be obtained from a production study conducted in each community, which would reveal the set of inputs needed to achieve the standard, along with information on each community's input prices. The regression approach provides the same information at much lower cost by determining how spending varies with input costs and environmental conditions, controlling for actual comfort outcomes.

Measuring Educational Performance

With education, as with home comfort, one cannot set a performance standard without selecting a way to measure performance. To put it another way, one cannot determine whether a school has met a performance standard unless its performance can be observed and measured. Policymakers may wish to avoid this choice, because selecting a standard is inevitably somewhat controversial. No set of performance standards can capture all aspects of learning, and schools may respond to specific standards by ''teaching to the test" or otherwise shifting their resources to meet the standard at the expense of other legitimate objectives. Nevertheless, this choice cannot be avoided. Any policy to enhance school performance involves, either explicitly or implicitly, a specific performance measure. The trick is to select performance measures that are rich enough to capture success in a range of educational activities. For the most part, the selection of a performance measure is based on the judgment of politicians and educational policy officials, perhaps with some input from scholars. The most common measure is based on some kind of test score, such as an average elementary reading or math score. A dropout rate is another widely used measure at the high school level.

To set a performance standard, policymakers must select both a measure of performance and the level of performance school districts are expected to meet. For example, all school districts might be expected to achieve a certain average test score or to ensure that a certain percentage of their students score above some standard reference point on a certain test. Standards of this type can be set for a single indicator or for a set of indicators. For example, school districts might be expected to have a certain average test score and a certain graduation rate.

We have developed an alternative approach, which selects performance indicators on statistical grounds. In particular, this approach determines which performance indicators are valued by voters, as indicated by their correlation with property values and school spending. This approach, which is explained in detail in Duncombe et al. (1996) and Duncombe and Yinger (1997), results in an index of educational performance. This index is a weighted average of the performance

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