Advertisement

Journal of Productivity Analysis

, Volume 39, Issue 3, pp 303–324 | Cite as

Output complexity, environmental conditions, and the efficiency of municipalities

  • Maria Teresa Balaguer-Coll
  • Diego Prior
  • Emili Tortosa-AusinaEmail author
Article

Abstract

Over the last few years, many studies have analyzed the efficiency of local governments in different countries. An accurate definition of their output bundles—i.e., the services and facilities they provide to their constituencies—is essential to this research. However, several difficulties emerge in this task. First, since in most cases the law only establishes the minimum amount of services and facilities to provide, it may well be the case that some municipalities go beyond the legal minimum and, consequently, might have an uncertain effect on efficiency when compared to other municipalities which stick to the legal minimum. Second, municipalities face very different environmental conditions, which raises some doubts about the plausibility of an unconditional analysis. This study tackles these problems by proposing an analysis in which the efficiency of municipalities is evaluated after splitting them into clusters according to various criteria (output mix, environmental conditions, level of powers). We perform our estimations using order-m frontiers, given their robustness to outliers and immunity to the curse of dimensionality. We provide an application to Spanish municipalities, and results show that both output mix and, more especially, environmental conditions, should be controlled for, since efficiency differences between municipalities in different groups are notable.

Keywords

Efficiency Environmental conditions Local government Metafrontier Order-m 

JEL Classification

D24 D60 H71 H72 

Notes

Acknowledgments

We are grateful for the helpful comments by Léopold Simar, Philippe Vanden Eckaut, Javier Perote, Esther del Brío, Knox Lovell, Christopher O’Donnell, Valentin Zelenyuk, Prasada Rao, Antonio Peyrache, Alicia Rambaldi and other participants at the XI European Workshop on Efficiency and Productivity Analysis (Pisa, June 2009), 49th European Congress of the Regional Science Association International (Lodz, 2009), XVII Encuentro de Economía Pública (Murcia, 2010), University of Salamanca Seminar (Salamanca, Spain), and CEPA Seminar (University of Queensland, Brisbane, December 2010), as well as those by the three referees which contributed substantially to the overall improvement of the paper. All three authors acknowledge the financial support of Ministerio de Ciencia e Innovación (ECO2010-18967/ECON and ECO2011-27227). Maria Teresa Balaguer-Coll and Emili Tortosa-Ausina also acknowledge the financial support of Fundació Caixa Castelló-Bancaixa (P1.1B2009-54) and Generalitat Valenciana (PROMETEO/2009/066), respectively. The usual disclaimer applies.

References

  1. Andersen P, Petersen NC (1993) A procedure for ranking efficient units in data envelopment analysis. Manage Sci 39(10):1261–1264CrossRefGoogle Scholar
  2. Balaguer-Coll MT, Prior D, Tortosa-Ausina E (2007) On the determinants of local government performance: a two-stage nonparametric approach. Eur Econ Rev 51(2):425–451CrossRefGoogle Scholar
  3. Balaguer-Coll MT, Prior D, Tortosa-Ausina E (2010a) Decentralization and efficiency of local government. Ann Reg Sci 45:571–601CrossRefGoogle Scholar
  4. Balaguer-Coll MT, Prior D, Tortosa-Ausina E (2010b) Devolution dynamics of Spanish local government. Environ Plan A 42(6):1476–1495CrossRefGoogle Scholar
  5. Banker RD, Morey RC (1986a) Efficiency analysis for exogenously fixed inputs and outputs. Oper Res 34:513–521CrossRefGoogle Scholar
  6. Banker RD, Morey RC (1986b) The use of categorical variables in data envelopment analysis. Manage Sci 32:1613–1627CrossRefGoogle Scholar
  7. Barankay I, Lockwood B (2007) Decentralization and the productive efficiency of government: evidence from Swiss cantons. J Public Econ 91(5–6):1197–1218CrossRefGoogle Scholar
  8. Battese GE, Rao D (2002) Technology gap, efficiency, and a stochastic metafrontier function. Int J Bus 1(2):87–93Google Scholar
  9. Battese GE, Rao D, O’Donnell CJ (2004) A metafrontier production function for estimation of technical efficiencies and technology gaps for firms operating under different technologies. J Prod Anal 21(1):91–103CrossRefGoogle Scholar
  10. Bennett JT, DiLorenzo TJ (1982) Off-budget activities of local government: the bane of the tax revolt. Public Choice 39(3):333–342CrossRefGoogle Scholar
  11. Bonaccorsi A, Daraio C (2008) The differentiation of the strategic profile of higher education institutions. New positioning indicators based on microdata. Scientometrics 74(1):15–37CrossRefGoogle Scholar
  12. Bos JWB, Kool CJM (2006) Bank efficiency: the role of bank strategy and local market conditions. J Bank Fin 30(7):1953–1974CrossRefGoogle Scholar
  13. Bosch N, Pedraja F, Suárez-Pandiello J (2000) Measuring the efficiency of Spanish municipal refuse collection services. Local Gov Stud 26(3):71–90CrossRefGoogle Scholar
  14. Bradford D, Malt R, Oates W (1969) The rising cost of local public services: some evidence and reflections. Natl Tax J 22:185–202Google Scholar
  15. Brueckner JK (1981) Congested public goods: the case of fire protection. J Public Econ 15:45–58CrossRefGoogle Scholar
  16. Brueckner JK, Wingler TL (1984) Public intermediate inputs, property values, and allocative efficiency. Econ Lett 14:245–250CrossRefGoogle Scholar
  17. Camanho AS, Dyson RG (2008) A generalisation of the Farrell cost efficiency measure applicable to non-fully competitive settings. OMEGA 36(1):147–162CrossRefGoogle Scholar
  18. Cazals C, Florens J-P, Simar L (2002) Nonparametric frontier estimation: a robust approach. J Econom 106:1–25CrossRefGoogle Scholar
  19. Cordero-Ferrera JM, Pedraja-Chaparro F, Salinas-Jiménez J (2008) Measuring efficiency in education: an analysis of different approaches for incorporating non-discretionary inputs. Appl Econ 40(10):1323–1339CrossRefGoogle Scholar
  20. Daraio C, Simar L (2005) Introducing environmental variables in nonparametric frontier models: a probabilistic approach. J Prod Anal 24:93–121CrossRefGoogle Scholar
  21. Daraio C, Simar L (2007a) Advanced robust and nonparametric methods in efficiency analysis. Methodology and applications. Studies in productivity and efficiency. Springer, New YorkGoogle Scholar
  22. Daraio C, Simar L (2007b) Conditional nonparametric frontier models for convex and nonconvex technologies: a unifying approach. J Prod Anal 28(1):13–32CrossRefGoogle Scholar
  23. De Borger B, Kerstens K (1996) Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches. Reg Sci Urban Econ 26:145–170CrossRefGoogle Scholar
  24. De Borger B, Kerstens K (2000) What is known about municipal efficiency: the Belgian case and beyond. In: Blank J (eds) Public provision and performance: contributions from efficiency and productivity measurement. El, Amsterdam, pp 299–330Google Scholar
  25. De Witte K, Dijkgraaf E (2009) Mean and bold? On separating merger economies from structural efficiency gains in the drinking water sector. J Oper Res Soc 61(2):222–234CrossRefGoogle Scholar
  26. De Witte K, Geys B (2011) Evaluating efficient public good provision: theory and evidence from a generalised conditional efficiency model for public libraries. J Urban Econ 69(3):319–327CrossRefGoogle Scholar
  27. De Witte K, Kortelainen M (2008) Blaming the exogenous environment? Conditional efficiency estimation with continuous and discrete environmental variables. Discussion papers 833, Center for Economic Studies, Leuven, BelgiumGoogle Scholar
  28. Deller SC (1992) Production efficiency in local government: a parametric approach. Public Fin Fin Publiques 47:32-44Google Scholar
  29. Deprins D, Simar L, Tulkens H (1984) Measuring labor-efficiency in post offices. In: Marchand M, Pestieau P, Tulkens H (eds) The performance of public enterprises: concepts and measurement, chapter 10. North-Holland, Amsterdam, pp 243–267Google Scholar
  30. El-Gamal M, Inanoglu H (2005) Inefficiency and heterogeneity in Turkish banking: 1990–2000. J Appl Econom 20:641–664CrossRefGoogle Scholar
  31. El-Mahgary S, Lahdelma R (1995) Data envelopment analysis: visualizing the results. Eur J Oper Res 83(3):700–710CrossRefGoogle Scholar
  32. Färe R, Grosskopf S, Lovell CAK, Pasurka C (1989) Multilateral productivity comparisons when some outputs are undesirable: a nonparametric approach. Rev Econ Stat 71(1):90–98CrossRefGoogle Scholar
  33. Ferrier GD, Lovell CAK (1990) Measuring cost efficiency in banking: econometric and linear programming evidence. J Econom 46:229–245CrossRefGoogle Scholar
  34. Fox KJ (2001) Efficiency in the public sector, volume 1 of studies in productivity and efficiency. Kluwer Academic Publishers, BostonGoogle Scholar
  35. Fried HO, Lovell CAK, Schmidt SS (eds) (2008) The measurement of productive efficiency and productivity change. Oxford University Press, OxfordGoogle Scholar
  36. Geys B, Heinemann F, Kalb A (2010) Voter involvement, fiscal autonomy and public sector efficiency: evidence from german municipalities. Eur J Polit Econ 26(2):265–278CrossRefGoogle Scholar
  37. Glass JC, McKillop DG, Hyndman N (1995) Efficiency in the provision of university teaching and research: an empirical analysis of U.K. universities. J Appl Econom 10(1):61–72Google Scholar
  38. Grossman PJ, Mavros P, Wassmer RW (1999) Public sector technical inefficiency in large U.S. cities. J Urban Econ 46:278–299CrossRefGoogle Scholar
  39. Guichard S, Kennedy M, Wurzel E, André C (2007) What promotes fiscal consolidation: OECD country experiences. Technical report, OECDGoogle Scholar
  40. Hammond CJ (2002) Efficiency in the provision of public services: a data envelopment analysis of UK public library systems. Appl Econ 34(5):649–657CrossRefGoogle Scholar
  41. Hayami Y (1969) Sources of agricultural productivity gap among selected countries. Am J Agric Econ 51(3):564–575CrossRefGoogle Scholar
  42. Hayami Y, Ruttan VW (1970) Agricultural productivity differences among countries. Am Econ Rev 60(5):895–911Google Scholar
  43. Hayami Y, Ruttan VW (1971) Agricultural development: an international perspective. Johns Hopkins University Press, BaltimoreGoogle Scholar
  44. Haynes P (2003). Managing complexity in the public services. Open University Press, BuckinghamGoogle Scholar
  45. Hierro M, Maza A (2009) Per capita income convergence and internal migration in Spain: are foreign-born migrants playing an important role? Paper Reg Sci 89(1):89–107CrossRefGoogle Scholar
  46. Hortas-Rico M, Solé-Ollé A (2010) Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities. Urban Stud 47(7):1513CrossRefGoogle Scholar
  47. Hughes PAN, Edwards ME (2000) Leviathan vs. Lilliputian: a data envelopment analysis of government efficiency. J Reg Sci 40(4):649–669CrossRefGoogle Scholar
  48. Joro T, Na P (2002) Data envelopment analysis in mutual fund evaluation: a critical review. Research Report 02-2, Department of Finance and Management Science, School of Business, University of Alberta, Edmonton, ABGoogle Scholar
  49. Kneip A, Park BU, Simar L (1998) A note on the convergence of nonparametric DEA estimators for production efficiency scores. Econom Theory 14:783–793CrossRefGoogle Scholar
  50. Koopmans TC (1951) Activity analysis of production and allocation. Wiley, New YorkGoogle Scholar
  51. Li Q (1996) Nonparametric testing of closeness between two unknown distribution functions. Econom Rev 15:261–274CrossRefGoogle Scholar
  52. Li Q, Maasoumi E, Racine JS (2009) A nonparametric test for equality of distributions with mixed categorical and continuous data. J Econom 148(2):186–200CrossRefGoogle Scholar
  53. Li Q, Racine JS (2007) Nonparametric econometrics: theory and practice. Princeton University Press, PrincetonGoogle Scholar
  54. Lovell CAK, Pastor JT (1997) Target setting: an application to a bank branch network. Eur J Opera Res 98(2):290–299CrossRefGoogle Scholar
  55. Marlow ML, Joulfaian D (1989) The determinants of off-budget activity of state and local governments. Public Choice 63(2):113–123CrossRefGoogle Scholar
  56. Maudos J, Pastor JM, Pérez F (2002) Competition and efficiency in Spanish banking sector: the importance of specialisation. Appl Fin Econ 12(7):505–516CrossRefGoogle Scholar
  57. McMillan ML, Chan WH (2006) University efficiency: a comparison and consolidation of results from stochastic and non-stochastic methods. Educ Econ 14(1):1–30CrossRefGoogle Scholar
  58. Merrifield J (1994) Factors that influence the level of underground government. Public Fin Rev 22(4):462CrossRefGoogle Scholar
  59. O’Donnell C, Westhuizen G (2002) Regional comparisons of banking performance in South Africa. S Afr J Econ 70(3):224–240CrossRefGoogle Scholar
  60. O’Donnell CJ, Prasada Rao DS, Battese GE (2008) Metafrontier frameworks for the study of firm-level efficiencies and technology ratios. Empir Econ 34:231–255CrossRefGoogle Scholar
  61. Pagan A, Ullah A (1999) Nonparametric econometrics. themes in modern econometrics. Cambridge University Press, CambridgeGoogle Scholar
  62. Peri G, Requena-Silvente F (2010) The trade creation effect of immigrants: evidence from the remarkable case of Spain. Can J Econ Revue canadienne d’économique 43(4):1433–1459CrossRefGoogle Scholar
  63. Ray SC (1991) Resource-use efficiency in public schools: a study of connecticut data. Manage Sci 37(12):1620–1629CrossRefGoogle Scholar
  64. Ruggiero J (1995) On the measurement and causes of technical inefficiency in local public services: with an application to public education. J Public Adm Res Theory 5(4):403–428Google Scholar
  65. Ruggiero J (2004) Performance evaluation when non-discretionary factors correlate with technical efficiency. Eur J Oper Res 159(1):250–257CrossRefGoogle Scholar
  66. Sampaio de Sousa M, Stošić B (2005) Technical efficiency of the Brazilian municipalities: correcting nonparametric frontier measurements for outliers. J Prod Anal 24:157–181CrossRefGoogle Scholar
  67. Schuster E (1985) Incorporating support constraints into nonparametric estimators of densities. Commun Stat 14:1123–1136CrossRefGoogle Scholar
  68. Silkman R, Young DR (1982) X-efficiency and state formula grants. Natl Tax J 35:383–397Google Scholar
  69. Silverman BW (1986) Density estimation for statistics and data analysis. Chapman and Hall, LondonGoogle Scholar
  70. Simar L (2003) Detecting outliers in frontier models: a simple approach. J Prod Anal 20(3):391-424CrossRefGoogle Scholar
  71. Simar L, Wilson PW (1998) Sensitivity analysis of efficiency scores: how to bootstrap in nonparametric frontier models. Manage Sci 44(1):49–61CrossRefGoogle Scholar
  72. Simar L, Wilson PW (2000) Statistical inference in nonparametric frontier models: the state of the art. J Prod Anal 13(1):49–78CrossRefGoogle Scholar
  73. Simar L, Wilson PW (2007) Estimation and inference in two-stage, semi-parametric models of productive processes. J Econom 136(1):31–64CrossRefGoogle Scholar
  74. Simar L, Wilson PW (2008) Statistical inference in nonparametric frontier models: recent developments and perspectives. In: Fried H, Lovell CAK, Schmidt SS (eds) The measurement of productive efficiency, chapter 4, 2nd edn. Oxford University Press, Oxford, pp 421–521Google Scholar
  75. Simar L, Zelenyuk V (2006) On testing equality of distributions of technical efficiency scores. Econ Rev 5(4):497–522CrossRefGoogle Scholar
  76. Spann R (1977) Public versus private provision of governmental services. In: Borcherding T (eds.), Budgets and bureaucrats: the sources of government growth. Duke University Press, Durham, NC, pp 71–89Google Scholar
  77. Tang K (1997) Efficiency of the private sector: a critical review of empirical evidence from public services. Int Rev Adm Sci 63(4):459–474CrossRefGoogle Scholar
  78. Taylor LL (1995) Allocative efficiency and local government. J Urban Econ 37:201–211CrossRefGoogle Scholar
  79. Vanden Eeckaut P, Tulkens H, Jamar M-A (1993) Cost efficiency in Belgian municipalities. In: Fried HO, Lovell CAK, Schmidt SS (eds) The measurement of productive efficiency, chapter 12. Oxford University Press, Oxford, pp 300–334Google Scholar
  80. Vilalta M, Mas D (2006) El gasto de carácter discrecional de los ayuntamientos y su financiación. Ejercicios 2002 y 2003. Elementos de debate territorial 23, Diputació de Barcelona (Xarxa de Municipis), BarcelonaGoogle Scholar
  81. Wand MP, Jones MC (1994) Multivariate plug-in bandwidth selection. Computational Stat 9:97–116Google Scholar
  82. Wilson PW (1993) Detecting outliers in deterministic nonparametric frontier models with multiple outputs. J Bus Econ Stat 11(3):319–323Google Scholar
  83. Wilson PW (1995) Detecting influential observations in data envelopment analysis. J Prod Anal 6(1):27–45CrossRefGoogle Scholar
  84. Worthington A, Lee B (2008) Efficiency, technology and productivity change in Australian universities, 1998–2003. Econ Educ Rev 27(3):285–298CrossRefGoogle Scholar
  85. Zafra Gómez JL, Prior D, Plata Díaz AM, López Hernández AM (2011) Reducing costs in times of crisis: delivery forms in small and medium sized local governments’ waste management services. Public Administration, forthcomingGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Maria Teresa Balaguer-Coll
    • 1
  • Diego Prior
    • 2
  • Emili Tortosa-Ausina
    • 3
    Email author
  1. 1.Universitat Jaume ICastelló de la PlanaSpain
  2. 2.Universitat Autònoma de Barcelona and IESEG School of ManagementCataloniaSpain
  3. 3.Departament d’Economia, Instituto Valenciano de Investigaciones Económicas (Ivie)Universitat Jaume ICastelló de la PlanaSpain

Personalised recommendations