Service delivery forms and cost efficiency in Spanish local government

Abstract

ABSTRACT In recent years, within the doctrine of the New Public Management (NPM), local governments have implemented different reforms to improve the municipal efficiency of local public services (Pollit and Bouckaert 2004; Andrews and Entwistle 2013). This situation has favored the construction of diverse organizational structures through the creation of agencies or horizontal decentralization, the contracting out of local public services and the cooperation with the private sector and with other municipalities, among others. As a result of this public reform process, different alternatives of service delivery coexist in the municipal entity. In this context, it is fundamental to know the impact that these structures have produced on the cost efficiency of the local governments. The study of the relationship between cost efficiency and service delivery forms can be analysed from a two standpoint: the overall efficiency of all public services provided by local governments or the specific efficiency of each service (De Borger and Kerstens 2000). In short, the need to conduct studies analysing this relationship from this dual perspective is due to the existence of several factors. Firstly, the empirical evidence on the relationship between NPM delivery forms and the overall cost efficiency of the municipality is limited since this kind of studies are more focused on analysing a particular type of delivery form. Secondly, studies considering different alternatives analyses the cost efficiency of one specific public service. However, the relationship between the specific cost efficiency of local public services and service delivery forms requires further analysis, in view of the need of determining which service delivery form is more appropriate for a particular service considering the size of the municipality. Finally, previous empirical studies analysing the specific efficiency of a service do not evaluate the cause-effect relationship that a change in the service delivery form has on the cost efficiency of the specific service. Thus, the first objective of this thesis is analysing jointly the effect of different service delivery forms on the overall cost efficiency in the municipality. In this respect, through the application of robust partial frontiers and the truncated regression proposed by Simar and Wilson (2007), the first study obtains empirical evidence on the relationship between NPM delivery forms and the overall cost efficiency and how different economic conditions affect to this relation. The results suggest that in general terms this NPM delivery forms reduce the overall cost efficiency in absence of financial crisis, whereas they tend to improve the municipal efficiency during periods of recession. Concretely, the results demonstrate that the creation of mixed firms contributes to improving cost efficiency in municipalities both in times of crisis and when there are no such problems. Nevertheless, this kind of studies cannot identify which delivery form is more appropriate for one specific local public service. Consequently, the second study analyses the cost efficiency of a specific service: the municipal solid waste (MSW), since it is one of the more costly and complex services to be provided by municipalities. Thus, the second objective of the thesis consists in analyzing which delivery form obtains the highest level of cost efficiency in the MSW service considering the size of local governments. For this purpose, the study applies the robust partial frontier approach and the concept of metafrontier developed by Battese and Rao (2002) and Battesse et al. (2004). So, comparing the cost frontier of each service delivery form with the metafrontier, which is the cost frontier with all municipalities, is possible to determine which delivery alternative obtains the highest level of cost efficiency. The results suggest that the inter-municipal cooperation is generally more appropriate for the MSW service. However, considering the municipal size the cooperative formulas are more suitable in the smallest municipalities, whereas the contracting out obtains the highest cost efficiency scores in local governments with a population over 20,000 inhabitants. Although our previous study evaluates the situation in four different years, it does not identify the service cost efficiency achieved when changes are made from one management form to another. To date, the literature has highlighted the importance of considering the time dimension in the analysis of this relationship but no studies have been conducted in this sense. Therefore, the third objective of this thesis is analysing the cause-effect relationship between contracting out and the cost efficiency of the MSW from a dynamic perspective. So, the third study proposes a new methodology approach through a two-step analysis consisting in the estimation of the cost efficiency of the MSW service through the robust partial frontiers as well as the intertemporal frontiers and the application, in the second stage, of the matching technique. The results indicate that during the first year of implementation of contracting out the MSW cost efficiency decreases. However, from the fourth year of implementation cost efficiency increases, offsetting the initial cost efficiency decrease. Given the different nature of these studies, this thesis allows to contribute from different perspectives to the existing literature on the relationship between service delivery forms and cost efficiency in local governments. In this respect, when this relationship is analysed considering the overall local public services provided by the municipality, the use of NPM delivery forms worse municipal cost efficiency. On the other hand, the thesis determines which delivery form is more efficient in the MSW service considering the size of the local government, evidencing the existence of a given population size from which contracting out is more efficient. Finally, the thesis demonstrates the need to analyse the efficiency-contracting out relationship from a dynamic perspective to determine its cause-effect relationship and contributes to the existing literature that analyse the efficiency of contracting out the MSW service. These findings have been validated for the Spanish context, but the work developed in this thesis opens new opportunities in the research of the cost efficiency of services delivery forms, which require validation in other countries, since the administrative culture and socioeconomic context may lead to different results. REFERENCIAS/REFERENCES Andrews, R. and Entwistle, T. (2013). ¿Four Faces of Public Service Efficiency.¿ Public Management Review, 15(2): 246-264. Battese, G.E.and Rao, D. (2002). ¿Technology Gap, Efficiency, and a Stochastic Metafrontier Function.¿ International Journal of Business and Economics, 1(2): 87¿93. Battese, G.E.; Rao, D. and O¿Donnell, C.J. (2004). ¿A Metafrontier Production Function for Estimation of Technical Efficiencies and Technology Gaps for Firms Operating under Different Technologies.¿ Journal of Productivity Analysis, 21(1): 91¿103. De Borger, B. and Kerstens, K. (2000). ¿What Is Known About Municipal Efficiency?¿ In: J. Blank; C. Lovell and S. 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