Assessing the Performance of Local Government
Stevens, Philip Andrew, National Institute Economic Review
We consider the measurement of performance in the public sector in general, focussing on local government and the provision of library services by English local authorities in particular. We will consider two methodologies that assess the performance of local authorities in terms of the efficiency with which they provide services and consider methods that allow us to account for exogenous influences on performance, such as the socio-economic profile of the population served by the authority. We find that although both methods' results appear similar, the implications for potential cost savings vary widely. Omitting to account for background factors leads to an overstatement of the level of inefficiency and hence the scope for reducing expenditure.
Keywords: local government; efficiency; SFA; DEA JEL classification: D20, H40, L32
The performance of the public sector is always an issue that attracts interest. There are two reasons for this; one is its size and the other the services it provides. The public sector represents a sizable proportion of the economy, and it is getting bigger. According to OECD figures quoted in the Financial Times (22/03/05), the share of general government spending in GDP is forecast to rise from 37.5 per cent in 2000 to 45.2 per cent in 2006. Moreover, any inefficiency is likely to have a major impact upon the nation's welfare.
Education, policing and the like affect the whole of society and the vulnerable in particular. Crime affects the poor disproportionately, partly because the wealthy can move to safer areas or purchase security measures. The private sector often cannot be relied on to produce these services efficiently and/or equitably. Indeed, it is precisely because of this that many services are provided or at least financed by the public sector. The difficulties in the measurement of the output and performance of the public sector arise in great part for the very same reasons that the services are in the public sector in the first place.
In this paper we consider the measurement of performance in the public sector in general, focussing on local government and the provision of library services by English local authorities in particular. We will consider two methodologies that assess the performance of local authorities in terms of the efficiency with which they provide services and consider methods that allow us to account for exogenous influences on performance, such as the socio-economic profile of the population served by the authority.
In section 2 we outline the main issues surrounding assessing the performance of public sector organisations and relate these to local government. Section 3 discusses techniques of efficiency analysis. In section 4 we describe the data used in our empirical analysis. Our results are discussed in section 5 and section 6 provides some concluding comments.
2. Assessing public sector performance
There are three main problems in assessing public sector performance: identifying the outputs, the absence of prices, and the problem of attribution. It is useful to make an important distinction between activities, outputs and outcomes. Activities are the units of provision, for example the activities of the highways department of a local authority would include the number of checks carried out and the number of road repairs carried out. Outputs may require a bundle of activities; having a properly functioning road requires both that it is checked for problems and that these are fixed when required. Outcomes are the characteristics of outputs which affect utility, in our highways example it might be having free flowing traffic on the roads in an authority's region.
It is often difficult to identify what the outputs of public sector organisations are. There are some services where it is difficult to identify any of the outputs. The problem is that we tend to observe activities rather than the actual outputs. …