This study examines the relationship between school consolidation and district transportation costs, effects on instructional expenditures, and institutional factors supporting consolidation. Data on actual student transportation costs across the United States indicate that despite widespread school and school district consolidation, transportation costs have increased, and transportation costs per child are greater in rural than urban school districts. Given the evidence that economy-of-scale arguments fail in rural school districts in terms of transportation costs, reasons beyond fiscal criteria must be driving consolidation. An analysis of the institutional environment shows how consolidation has been justified according to the exaction of state authority over local school districts, and has been supported through national policy towards housing and land use development. Institutional perspectives of organizational legitimacy and survival would not seem to justify consolidation, but consolidation always terminates some organizational form. Perhaps the organizational form of small schools and weak school districts makes them more susceptible to organizational death by other legitimacy-seeking organizations. It appears that higher transportation costs associated with extensive consolidation in rural areas constrain opportunities to fund quality instruction in rural areas. (Contains 44 references and 12 data tables and figures.) (TD)