Abstract The Ministry of Education in Taiwan adopted a funding program in 1991 to encourage private universities and colleges to improve their academic performance through developing their own medium-term plans. This thesis tends to study the effect of the funding program on the academic performance of universities and colleges in Taiwan. A data envelopment analysis is conducted to examine the degree of improvement in faculty and teaching resources for 17 universities and colleges that participated in the funding program. Major conclusions in this study are as follows: 1) The academic performance of private universities and colleges was significantly improved after the implementation of the funding program. 2) The Ministry of Education put a limitation on the use of the fund in 1995. However, the academic performance of universities and colleges improved insignificantly after following the limitation. 3) As a matter of fact, the limitation on the use of the fund distorted the distribution of university resources so that the teacher/student ratio, ¡§the percentage of full-time faculty members with Ph.D.¡¨ and ¡§the average research expenditure per full-time faculty member¡¨ were decreased.