What Determines Local Governments' Technical Efficiency? The Case of Road Maintenance

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp09047.pdf Non-Technical SummaryWhile there are numerous studies on the measurement of the technical or cost efficiency of local governments, the analysis of the main drivers of this efficiency has attracted far less attention in this literature. However, information about the main sources of (in)efficiency are not unimportant, since they can provide useful information for (local) policy-makers.Therefore, the aim of this paper is to add to the existing literature by studying the determinants of local governments' efficiency. For this purpose we focus on one particular area of public goods provision, namely the construction and maintenance of (county) roads, instead of the local government as a whole. This avoids, at least to a certain degree, the problem of defining a comprehensive set of reasonable input and output indicators fully describing local governments' activities, and therefore reduces potential sources of measurement errors.Our empirical analysis is based on a broad panel of German counties rather than a crosssection used in the most previous studies which investigated the determinants of efficiency.The German counties are an interesting case to study, since one of the main tasks of these counties is the construction and maintenance of county roads. In order to determine the main drivers of efficiency in road maintenance, we first calculate efficiency indices using non-parametric (Data Envelopment Analysis) and parametric (stochastic frontier analysis) estimation techniques. In a second step, we examine how these efficiency indices can be explained by a number of exogenous (e.g. socio-economic, fiscal, political) variables. More specifically, we apply and compare four different estimation approaches to detect the potential sources of (in)efficiency. This broad variety of estimation approaches allows us to test and check the robustness of the derived results.The results of our analysis show that (controlling for numerous characteristics of the counties) the disposable income of the counties' citizens, intergovernmental grants for county roads, and the payments to the counties influence technical efficiency negatively. For the political variables we find weak evidence that efficiency decreases with an increasing share of seats of left-wing parties in the county council; on the other hand, the hypothesis that efficiency decreases with the degree of political concentra...

Value for money? German local government efficiency in a comparative perspective

“…As mentioned in the introduction, studies on the (in)efficiency of the public sector tend to concentrate on one particular area of public goods provision: say, waste collection, administration, road maintenance, public libraries, and so on (see De Borger and Kerstens, 2000;Worthington and Dollery, 2000;Hammond, 2002;Kalb, 2009). While interesting in their own right, such sector-specific studies do not allow determining overall local government efficiency.…”

Determinants of Efficiency in Child-Care Provision

“…Because there are no restrictions on these grants with regard to investment decisions, it is possible that financial aid is not fully used to adjust expenditures to local needs (e.g., to adapt local expenditures to changes in demand, such as demographic changes). The effect of such grants on municipal expenditure inefficiency is analyzed by Kalb (2009). He finds that in the provision of county roads in the state of Baden-Württemberg in southern Germany, higher intergovernmental grants are associated with higher inefficiency (flypaper effect).…”

Financial aid for local governments: blessing or mismanagement?

“…Obviously, a higher inefficiency of municipalities' having high debts is for the most part not due to interest payments. We skip the analysis of already tested background variables because these are primary included in the model to enable unbiased estimates of the inefficiency scores and allow to some extend for observed heterogeneity (for more information see Geys et al, 2010;Kalb, 2014;Stevens, 2005).…”

“…This approach is due to data availability. Kalb et al (2012) present a common standard of quite similar variables chosen as output proxies for municipalities (see, for example, de Borger and Kerstens, 1996;de Borger et al, 1994;Geys and Moesen, 2009;Kalb, 2014;Kalb et al, 2012;Stevens, 2005;Vanden Eeckhaut et al, 1993;Worthington, 2000).…”

“…The population density relates to the urban/rural divide and thus proxies the ability of the authority to concentrate local public service provision (Stevens, 2005) and the heterogeneity of property prices (which might affect municipalities' cost situation). We further adopt accommodation facilities as a background variable tested by Kalb (2014) for the case of road maintenance cost efficiency. further prove the effect of accrual accounting implementation in local governments, thus we also adopt this variable.…”