This study empirically tests the notion that consolidating smaller public school districts will save taxpayers money. Multiple regression analyses are employed to analyze the relationship between district size and per-pupil expenditures in the state of Michigan, focusing on the five most recent school years for which data are available. The study's results suggest that costs will continue to rise over time unless market incentives are introduced into the system. Arguably the study's most significant finding is that public school officials appear to maximize school operating spending regardless of the public demand for educational services. The introduction of market incentives could counteract this tendency by providing inducements for policymakers and school officials to reduce operating costs while maintaining or improving quality. Appendices include: (1) Detailed Regression Results; (2) Postestimation Diagnostics; and (3) Michigan School District Head Counts. (Contains 18 footnotes.)