A Longitudinal Parametric Approach to Estimate Local Government Efficiency

Previous empirical works on municipal efficiency have mostly used cross-sectional data which makes it impossible to separate unobserved heterogeneity from inefficiency. Furthermore, they have also typically used a two stages approach which has been widely criticized as the assumptions made in the first stage are violated in the second stage, generating biased results. We present one of the first longitudinal parametric studies that analyze municipal efficiency and its determinants using a one step procedure. Furthermore, we are the first of this kind that analize overall efficiency as well as efficiency by clusters of municipalities in order to reduce heterogeneity. We use administrative datasets of Chilean municipalities for the 2008-2010 period and our results suggest that Chilean municipalities have on average an inefficiency level of 30% with a significant variance between clusters of municipalities. Also, our results suggest that socio-economic, fiscal and political variables affect municipal efficiency. In particular, we found that municipalities with tighter budget constraints are associated with more efficient municipalities.

[1]  Per J. Agrell,et al.  A Caveat on the Measurement of Productive Efficiency , 2001 .

[2]  Franz C. Palm,et al.  Wald Criteria for Jointly Testing Equality and Inequality , 1986 .

[3]  William H. Greene,et al.  Reconsidering heterogeneity in panel data estimators of the stochastic frontier model , 2005 .

[4]  A. U.S.,et al.  FORMULATION AND ESTIMATION OF STOCHASTIC FRONTIER PRODUCTION FUNCTION MODELS , 2001 .

[5]  J. Zofío,et al.  Evaluating Effectiveness in Public Provision of Infrastructure and Equipment: The Case of Spanish Municipalities , 2001 .

[6]  W. Meeusen,et al.  Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error , 1977 .

[7]  P. Catalán,et al.  Analisis de la eficiencia del gasto municipal y de sus determinantes , 2009 .

[8]  António Afonso,et al.  Measuring local government spending efficiency: Evidence for the Lisbon region , 2006 .

[9]  Antreas D. Athanassopoulos,et al.  Assessing Aggregate Cost Efficiency And The Related Policy Implications For Greek Local Municipalities , 1998 .

[10]  Rafael A. Cuesta.  A Production Model With Firm-Specific Temporal Variation in Technical Inefficiency: With Application to Spanish Dairy Farms , 2000 .

[11]  V. Rao,et al.  Political Selection and the Quality of Government: Evidence from South India , 2005 .

[12]  H. Loikkanen,et al.  Cost efficiency of finnish municipalities in basic service provision 1994-2002 , 2005 .

[13]  D. Prior,et al.  On the determinants of local government performance: A two-stage nonparametric approach , 2007 .

[14]  A. Worthington.  Cost Efficiency in Australian Local Government: A Comparative Analysis of Mathematical Programming anf Econometrical Approaches , 2000 .

[15]  W. Greene.  Distinguishing between Heterogeneity and Inefficiency: Stochastic Frontier Analysis of the World Health Organization S Panel Data on National Health Care Systems , 2003, Health economics.

[16]  W. Greene.  Fixed and Random Effects in Stochastic Frontier Models , 2002 .

[17]  Francisco de Sousa Ramos,et al.  Eficiência técnica e retornos de escala na produção de serviços públicos municipais: o caso do nordeste e do sudeste brasileiros , 1999 .

[18]  Alexander Kalb.  The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities , 2010 .

[19]  G. Battese,et al.  Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India , 1992 .

[20]  S. Kumbhakar,et al.  A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms , 1991 .

[21]  Y. Mundlak.  On the Pooling of Time Series and Cross Section Data , 1978 .

[22]  C. Lovell,et al.  On the estimation of technical inefficiency in the stochastic frontier production function model , 1982 .

[23]  António Afonso,et al.  Assessing and explaining the relative efficiency of local government , 2008 .

[24]  Leibniz-Informationszentrum Wirtschaft,et al.  Voter involvement, fiscal autonomy and public sector efficiency: evidence from German municipalities , 2009 .

[25]  G. Battese,et al.  A model for technical inefficiency effects in a stochastic frontier production function for panel data , 1995 .

[26]  K. Kerstens,et al.  Radial and nonradial measures of technical efficiency: An empirical illustration for Belgian local governments using an FDH reference technology , 1996 .

[27]  J. Vanneste,et al.  Explaining differences in productive efficiency: An application to Belgian municipalities , 1994 .

[28]  W. Greene.  Frontier Production Functions , 1993 .

[29]  G. Battese,et al.  ESTIMATION OF A PRODUCTION FRONTIER MODEL: WITH APPLICATION TO THE PASTORAL ZONE OF EASTERN AUSTRALIA , 1977 .

[30]  Lung-fei Lee,et al.  The measurement and sources of technical inefficiency in the Indonesian weaving industry , 1981 .

[31]  Benny Geys,et al.  Exploring sources of local government technical inefficiency: evidence from Flemish municipalities [Ursachenforschung zur technischen Ineffizienz kommunaler Verwaltungen: Evidenz von flämischen Gemeindeverwaltungen] , 2008 .

[32]  Vietnamese Manufacturing Firms.  STOCHASTIC FRONTIER ANALYSIS OF , 2014 .

[33]  B. Geys,et al.  Voter Involvement, Fiscal Autonomy and Public Sector Efficiency: Evidence from German Municipalities , 2010 .

[34]  Diego Prior Jiménez,et al.  Efficiency and Quality in Local Government. The Case of Spanish Local Authorities , 2002 .

[35]  Brian Dollery,et al.  An empirical survey of frontier efficiency measurement techniques in local government , 2000 .

[36]  Peter Schmidt,et al.  One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels , 2002 .

[37]  K. Kerstens,et al.  Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches , 1996 .

[38]  Martin Gregor,et al.  Local Government Efficiency: Evidence from the Czech Municipalities , 2011 .

[39]  R. Stevenson.  Likelihood functions for generalized stochastic frontier estimation , 1980 .

[40]  P. Schmidt.  Frontier production functions , 1985 .