Which estimator to measure local governments’ costefficiency? The case of Spanish municipalities

Abstract

WeanalyseoverallcostefficiencyinSpanishlocalgovernmentsduringthecrisisperiod(2008–2015). To this end, we first consider some of the most popular nonparametricmethods to evaluate local government efficiency, data envelopment analysis and freedisposal hull, as well as recent proposals, namely the order-mpartial frontier and thenonparametric estimator proposed by Kneip et al. (Econom Theory 24(6):1663–1697,2008). Second, to compare the four methods and choose the most appropriate onefor our particular context and dataset (local government cost efficiency in Spain),we carry out an experiment via Monte Carlo simulations and discuss the relativeperformance of the efficiency scores under various scenarios. Our results suggestthat there is no one approach suitable for all efficiency analysis. We find that forour sample of 1846 Spanish local governments, the average cost efficiency wouldhave been between 0.5417 and 0.7543 during the period 2008–2015, suggesting thatSpanish local governments could have achieved the same level of local outputs withabout 25% and 46% fewer resources.