The purpose of this paper is twofold. First, although many cost function studies have been done in developed countries, there has been no such study for the developing countries such as vietnam. This paper will make the first attempt at conducting a cost function analysis for vietnam. Second, it also demonstrates how the results of the cost function analysis can be used to potentially address two weaknesses of the current norms for intergovernmental educational transfers in vietnam. These norms neither are relevant for output-based budgeting purposes nor fully account for factors influencing provinces’ cost of delivering education. The cost function results can be used for a more output-oriented and more adequate, thus more equitable, distribution of educational transfers. 2012 Copyright taylor and francis group, llc.