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Measuring allocative efficiency in Cultural Economics: the case of “Fundación Princesa de Asturias” (The Princess of Asturias Foundation)

Abstract

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.

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Source: Princess of Asturias Foundation

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Source: Princess of Asturias Foundation

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Notes

  1. For a more detailed overview, see Fernández-Blanco et al. (2013).

  2. Since 1985, PAF manages three choirs and an International Music School, launched in 1990, that offers summer courses, master classes, conferences and seminars. From 1992 onwards, PAF has scheduled more than four hundred concerts in different towns and villages of the Region.

  3. Since the major part of the resources of the PAF are devoted to the selection of the award-winners and the organization of the Awards Ceremony, with the number of awards having stabilized after the initial years of the period and no prevision existing in terms of notorious or relevant changes in future years, the main output can be considered more or less constant. This fact endorses our selection of an input-oriented distance function.

  4. This procedure has been successfully implemented in the case of Spanish National Railways (Baños-Pino et al. 2002).

  5. The input distance function also satisfies the following properties: is decreasing in outputs, increasing in inputs, homogenous of degree one and concave in inputs.

  6. Homogeneity of degree one in inputs is a property of the input distance function (see for example Coelli and Perelman 2000). Also, note that in the right-hand side of Eq. (8) inputs appear as covariates in a ratio form. Hence, they will be independent of the random error term (see Coelli and Perelman 2000 or Kumbhakar 2011 for details). That is, by imposing the homogeneity of degree one in inputs, we are able to obtain consistent estimates, despite recognizing the possible endogeneity of the input variables.

  7. We have not distinguished between temporary and permanent personnel or different professional categories. Since we have no labour data for the first three years of our period, the final number of observations implied in our estimations is 22.

  8. The Appendix displays the evolution of the budget of PAF. Since the main output (Princess of Asturias Awards) is more or less the same before and during the financial crisis, PAF is achieving a similar level of output with less resources and this fact can be also considered as an inkling of an improvement in the efficiency of PAF (see Table 6 and Fig. 9).

  9. The test of constant returns of scale, that is the sum of the three output estimated coefficients equals one, implies a value χ 2(1) = 2340. Then, the hypothesis of constant returns of scale can be rejected at a 1% significance level.

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Acknowledgements

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.

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Correspondence to Ana Rodríguez-Álvarez.

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Appendix

Appendix

 

Table 7 PAF budget 1988–2012 (in constant 2011 euros).
Fig. 9
figure 9

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PAF Budget 1988-2012

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Fernández-Blanco, V., Rodríguez-Álvarez, A. Measuring allocative efficiency in Cultural Economics: the case of “Fundación Princesa de Asturias” (The Princess of Asturias Foundation). J Cult Econ 42, 91–110 (2018). https://doi.org/10.1007/s10824-016-9287-4

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Keywords

  • Technical and allocative efficiency
  • Stochastic frontier analysis
  • Input distance function
  • Non-profit institutions

JEL Classification

  • L82
  • D24
  • Z10