Considerable interest in consolidation or reorganization of school districts derives from the perception that consolidation produces significant cost savings due to scale economies in the provision of education. This paper examines potential cost savings from consolidation of New York school districts--an initiative actively encouraged by the State. It extends past research on consolidation by developing a theoretical framework that distinguishes several dimensions of economies of scale and defines an empirical cost function for schooling. Data were used from 610 of 696 New York school districts in 1990 (omitting New York City, among others). The results indicate potentially sizeable cost savings from consolidation of districts with fewer than 500 pupils. Using such districts as candidates for consolidation, the study examines in detail the implications of merging these districts with a neighboring district. Findings reveal that relatively few New York districts are strong candidates for full consolidation, although some may benefit from sharing of administrative and support functions. The estimated cost model also sheds light on potential diseconomies associated with large urban school districts. While findings apply directly to New York, the method developed here has general relevance to state education policy by helping to target school districts as candidates for consolidation, and, where consolidation is not feasible, adjusting state aid formulas to reflect more accurately the cost impacts of scale. Contains 38 references and 8 data tables and figures. (Author/SV)