Measuring allocative efficiency in Cultural Economics: the case of “Fundación Princesa de Asturias” (The Princess of Asturias Foundation)
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The literature on Cultural Economics provides us with some examples for the measurement of technical efficiency. However, there are few case studies dedicated to the analysis of allocative efficiency. The aim of this paper is to fill this gap by incorporating a methodology that analyses both technical and allocative efficiency. We use the Shephard’s distance function, particularly suitable when affronted with non-profit-making firms or institutions that are not interested in cost minimization. As an empirical application, we analyse the efficiency of Fundación Princesa de Asturias (PAF), a Spanish non-governmental organization devoted to promoting the cultural, scientific and humanistic values of universal heritage, the period of study being 1988–2012. Our findings suggest that PAF could have used 7% less inputs to achieve the same level of output. On the other hand, we have found allocative inefficiency. Concretely, the input for other expenditures appears to have been over-utilized in relation to both the inputs for labour and current assets, with labour in turn being over-utilized in relation to current assets. Moreover, our results indicate that both technical and allocative efficiency have clearly improved during the period analysed. In summary, our empirical application shows how distance function methodology can be successfully implemented to measure allocative efficiency in cultural firms and institutions.
KeywordsTechnical and allocative efficiency Stochastic frontier analysis Input distance function Non-profit institutions
JEL ClassificationL82 D24 Z10
We are grateful to Fundación Princesa de Asturias for its personal and financial support (FUO-EM-171-13). We are particularly grateful to Gustavo González-Izquierdo, for his helpful comments, and to Beatriz Plaza. Ana Rodriguez-Alvarez acknowledges financial support from the project ECO2013-43925-R (Ministry of Economy and Competitiveness). We also would like to thank the valuable comments of two anonymous referees, which have improved this article. The usual caveat applies.
Compliance with ethical standards
Conflict of interest
The authors declare that they have not conflict of interest.
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