Introduction th e evaluation of education cost differentials across school districts has been an important topic in education finance research for decades (fowler & monk, 2001). Interest in this topic has grown in recent years with the emergence of adequacy as the primary standard in school finance litigation and the growth of state accountability systems that focus on student performance. Th ese developments call attention to education cost differentials, which arise when some districts must spend more than others to obtain the same performance. Despite a growing literature on the link between research and policy on this topic, however, existing state aid formulas usually contain ad hoc cost adjustments that fall far short of the across-district cost differences estimated by scholars. Th e objective of this chapter is to synthesize the research literature on education cost differences across school districts and to discuss the implications of this literature for state education aid formulas. Th e material in this chapter complements the discussions of equity and adequacy in the baker and green, and downes and stiefel, chapters in this volume. 2015 Association for education finance and policy (aefp).