-
ry
S
Local government
t bediesifcudyofh poth
Furthermore, mixed companies may increase the inter-annual
variation of the efciency, especially when
NPMrds ofis u
To bem(econolic serv
efciency of the public administration and to reduce public
sectorspending, politicians began to reform public services in
differentways, based on NPM theory.
; Brueckner (1979)SA; Vanden et al.nd Kersten (1996)gton et al.
(2001)the Netherlands;Barrow (2000) for
functional decen-tralisation and externalisation with respect to
Spanish efciency oflocal governments is scarce. Most studies have
focused merely onthe dichotomy between private and public
management, and donot consider the different ways of providing
public servicesthrough functional decentralisation. In addition,
previous paperssuffer other limitations as regards the samples
selected and thenumber of services analysed. In general, their
analyses are carriedout in a specic year, so the real effect is
difcult to observe, andthey are only focused on one region of
Spain. Furthermore, only one
* Corresponding author. Universidad de Salamanca, Facultad de
Economa yEmpresa, Campus Miguel de Unamuno Edicio FES, 37007
Salamanca, Spain.Tel.: 34 923294400x3132; fax. 34 923294715.
Contents lists available at
Utilities
journal homepage: www.e
Utilities Policy 26 (2013) 23e35E-mail address: [email protected]
(B. Cuadrado-Ballesteros).To achieve these important objectives,
public management reformmay make use of diverse processes,
including privatisation, de-centralisation and externalisation
(Kettl, 2000).
Some years ago, the study of efciency acquired
increasingimportance, when the European Economic and Monetary
Unionestablished restrictions with a view to attaining budgetary
stability,which oblige governments to assign their resources
efciently tosatisfy their citizens (Benito et al., 2010a). In order
to improve the
level, includingWorthington (2000) for Australiafor New Jersey;
Grossman et al. (1999) for the U(1993), De Borger et al. (1994) and
De Borger afor Belgium; Tarou (2000) for France; Worthinfor Wales;
Dijkgraaf and Gradus (2003) forDijkgraaf et al. (2003) for Denmark;
Reeves andIreland; and Ohlsson (2003) for Sweden.
However, literature focused on the effect ofations of government
more efcient and increasing the chances thatthe policies which are
chosen and implemented will be effective.
demand.A large number of studies have analysed efciency at the
local1. Introduction
The three main pillars on whichefciency and exibility. In the
wo(2000), public management reformmeans to an end, not an end in
itself.ends. These include making savingsditure, improving the
quality of pub0957-1787/$ e see front matter 2013 Elsevier
Ltd.http://dx.doi.org/10.1016/j.jup.2013.04.005they are promoted by
right-wing governments too. 2013 Elsevier Ltd. All rights
reserved.
rests are: effectiveness,Pollitt and Bouckaert
sually thought of as aore precise, tomultiplemies) in public
expen-ices, making the oper-
In the case of Spain, reforms under the NPM theory arrived
late(Hood, 1996) and this particularly affects local governments,
whichprovide most public services. As the empirical evidence
shows,local administrations are resorting to private contracting
(Pina andTorres, 1998; Garca, 1999; Rami-Matas and Garca-Codina,
2006)and decentralisation of the administration (Cuadrado, 2008;
Prado-Lorenzo et al., 2009; Benito and Bastida, 2003a, 2003b, 2005,
2008;Montesinos et al., 2010) in order to supply the services that
usersFunctional decentralisationExternalisationEfciency
externalisation e impact negatively on efciency of local
governments. Nevertheless, public businessentities created by
right-wing parties may improve the annual efciency of the local
governments.Effect of modes of public services delivegovernments: A
two-stage approach
Beatriz Cuadrado-Ballesteros*, Isabel-Mara Garca-University of
Salamanca, Spain
a r t i c l e i n f o
Article history:Received 29 January 2013Received in revised
form24 April 2013Accepted 29 April 2013
Keywords:Public services
a b s t r a c t
A clear relationship has noof local Governments. Stuyear, so the
real effect is dThe main aim of this st
processes on the efciencySpanish municipalities witThe results
show that bAll rights reserved.on the efciency of local
nchez, Jos-Manuel Prado-Lorenzo
en found between the modes of public services delivery and the
efciencyhave been carried out for only one or two services and/or
in a concreteult to generalize.is to analyse the effect of
functional decentralisation and externalisationlocal public
services delivery, in order to clarify the situation. For this,
129opulations over 10,000 between 1999 and 2007 have been
considered.pure modes of public services delivery e functional
decentralisation and
SciVerse ScienceDirect
Policy
lsevier .com/locate/ jup
-
or two services are included in most such studies, and so the
evi-dence obtained cannot be generalised for all public
services.
Accordingly, the main aim of this study is to analyse the effect
offunctional decentralisation and externalisation processes on
theefciency of Spanish local governments. Concretely, we expect
toadd empirical evidence about this topic by (i) specifying the
impactof these processes; (ii) conducting a complete analysis of
functionaldecentralisation, taking into account the different
decentralisedentities e public companies, foundations, autonomous
organisa-tions and public business entities e instead of only one
mode ofdelivery; and (iii) choosing a time period that permits the
use ofpanel datamethods, which providemore robust results and allow
usto control the unobservable heterogeneity and correct the
endoge-
culture, the promotion of womens rights, housing, health care
andenvironmental protection.
The Local Government Regulatory Law allows municipal ser-vices
to be provided through the following ways:
Direct management: the administration, management andcontrol of
public services are handled by the public adminis-tration
itself.
Functional decentralisation: this is the process throughwhich
local governments create smaller and more exibleentities in which a
business culture predominates (Aberbachand Rockman, 1999). These
agencies are closer to citizens, sothey have better knowledge of
their preferences and needs,
rdin
T
-----
B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013)
23e3524neity problems between dependent and independent
variables.With this goal in mind, we considered 129 Spanish
municipal-
ities with populations of over 10,000 between 1999 and 2007,
in-clusive. In order to provide more precise ndings, the process
offunctional decentralisation is disaggregated according to the
legalform of the organisation: public companies, autonomous
organi-sations, public business entities and foundations.
The results obtained show that both pure forms of public
ser-vices management have a negative impact on efciency.
Never-theless, public business entities created by right-wing
parties mayimprove the annual efciency of the local governments, as
well as,companies with an ownership structure formed by a
public-privatesector mix increases inter-annual efciency,
especially when theyare promoted by right-wing governments too.
2. Modes of public services delivery and efciency of
localgovernment: research hypotheses
2.1. Modes of public services delivery at local level in
Spain
According to Article 11.1 of the 1985 Local Government
Regu-latory Law (Ley Reguladora de Bases de Rgimen Locale LRBRL),
amunicipality is the basic local entity of the territorial
organisationof the state, with legal personality and full capacity
to full itspurpose.
With regard to organisational structure, the municipal
admin-istration is composed of two types of bodies: the political,
formedby the mayor and the town councillors, with either
decision-making functions or service provision management duties;
andthe executive, comprised of the set of services and units that
carryout the decisions taken by the former.
The responsibilities attributed to local government are set out
inarticles 25 and 26 of the Local Government Regulatory Law, and
arestrongly linked to the population of the municipality, as shown
inTable 1.
In addition, article 28 of the same law enables municipalities
tooffer complementary services related to aspects such as
education,
Table 1Local public services in Spain.
Essential services Minimum or compulsory services acco
In all towns Towns with a population over 5000
- Street lighting- Cemetery- Waste collection- Street cleaning-
Domestic supply of drinking water- Sewer system and drains- Road
access- Paving of public roads- Food and drink control
- Public park- Public library- Market- Waste treatmentSource:
The authors, based on the Local Government Regulatory Law.thus,
local government may improve public services delivery.Some reasons
to carry out this process are improving efciencyin attaining
objectives (Boyne, 1996), improving coordinationand control
(Tullock, 1965), reducing bureaucratic processes(Niskanen, 1971)
and recognising needs more easily, thusproviding services faster
(Downs, 1967) due to the fact thatdecentralised units are closer to
citizens and, therefore, moreaware of their preferences (Hayek,
1945). The fact that man-agement units are smaller and more exible
makes themmoredynamic and leads users to express greater
satisfaction. In thecase of Spain, local governments are able to
create thefollowing decentralised entities:B Autonomous
organisations: public bodies with their ownlegal personality that
have an autonomous managementsystem, but which continue to form
part of the GeneralAdministration. They are subject to
Administrative Law andtheir regulations are governed by Act 6/1997
of 20 April1997, on the Operation and Organization of the General
StateAdministration. This type of structure is often used for
taxcollection purposes, in view of the budgetary control ob-tained
and the fact that procurement rules are exible in thiscase.
Autonomous organisations are used for administrativeand commercial
tasks.
B Public business entities: these are public bodies that
areengaged in providing services or goods with nancialcompensation
and are subject to private law, except inrelation to the exercise
of public powers and certain aspectsof performance, in this
particular case public law is applied(Barrera, 2008). These
entities are used for some culturalservices and urban development
and housing services,mainly in municipalities in Catalonia and the
BasqueCountry.
B Public companies: entities with their own legal
personality,distinct from that of their members, and which operate
inaccordance with Commercial Law, using their own capital.The
provision of public services through public companies isusually
nanced through public property taxes and prices
g to population
owns with a population over 20,000 Towns with a population over
50,000
Civil defenceSocial servicesFire prevention and
extinguishingPublic sports facilitiesSlaughterhouse
- Public transport- Environmental protection
-
2001), Bosch et al. (2000), Dez-Ticio and Mancebn (2002,
2003),Prieto and Zoo (2001), Gimnez and Prior (2003, 2007),
Balaguer-Coll (2004), Garca-Snchez (2006, 2007), Balaguer-Coll et
al. (2007,2010), Benito et al. (2010a) and Bel et al. (2009),
although most ofthese studies do not focus on how functional
decentralisation andexternalisation processes affect efciency in
the provision of publicservices.
The main conclusion in the case of Spain is that the use of
the
/ Utilities Policy 26 (2013) 23e35 25charged to the users of the
services (Rubin, 1988; Molinariand Tyer, 2003). Public companies
are usually preferred forurban management, water supply and
sanitation and urbanwaste management and more than 80% of these
publiccompanies have wholly public capital (Morn, 2009).
B Public foundations: according to the Spanish Association
ofFoundations, these are non-prot organisations whosepatrimony is
perpetually devoted to the general interest, andwhose beneciaries
are groups of people. Among theirgeneral interest goals are the
defence of human rights(including assistance to victims of
terrorism and other actsof violence), social care and social
inclusion, educational,cultural and social issues, scientic,
sports-related, health-related and work-related activities,
environmental protec-tion and technological development.
Externalization (outsourcing or contracting-out): local
gov-ernments may allow service management to contract with
theprivate sector. The local administration retains ownership andto
a large degree maintains decision and control capacity, butprivate
entities provide and manage the services in question.This is
another important reform of NPM theory, for which thisprocess is a
way of increasing accountability by turning to in-dividuals from
the market; the idea is that this may maximizeeconomic efciency,
reducing government costs and increasingthe quality of public
services as a result of the transfer of certaingovernment functions
to the private sector where they are leftin the hands of specialist
suppliers (Cannadi and Dollery, 2005;Gonzlez et al., 2011). In this
way local governments may focuson those strategic operations that
are more important andexternalise the less relevant ones (Butler,
1985; Donahue, 1989;Brown and Potoski, 2003; Pessoa, 2009; Gonzlez
et al., 2011).The main formulas for externalising public services
areadministrative concession, interested management, leasing
andcooperatives, consortia and agreement (Pina and Torres,
1997).
Regarding Cuadrado-Ballesteros et al. (2013a), Spanish
munici-palities often externalisewater supply and sanitation, the
collectionand treatment of urban waste and the provision of urban
publictransport. In general, for water services, local governments
rely onthe company Aqualia, which is part of the FCC Group; in
thecase of urban waste, FCC shares the provision of this service
withthe ACS Group, although in general, municipalities that use
FCCfor water services, use the same company for their urban
wastedisposal services; for urban public transport, local
governmentsusually contract small local companies.
Mixed companies: the public administration and the privatesector
jointly provide capital to create these companies, so theseare
neither entirely public-ownership nor
private-ownership.Themanagement of public services is shared by the
two sectors.
In the case of Spain, mixed companies are usually used for
waterservices and some cultural and housing services. In the case
ofwater services, the most important company is the Agbar Group.For
cultural and housing services, local governments use
speciccompanies, an option that is predominant in Catalonia and
theBasque Country (Cuadrado-Ballesteros et al., 2013a).
Due to the existence of different modes of public services
de-livery in Spain, it is important to consider these different
entities, toavoid partial analysis and biased results.
2.2. The efciency of local governments
In general, in research into efciency at the local level in
Spain,
B. Cuadrado-Ballesteros et al.certain authors can be
highlighted, such as Pina and Torres (1992,private sector in the
provision of public services does not guaranteegreater efciency,
and so the balance between public and privatemanagement is not
optimal, as shown by Bel and Warner (2008)and Bel et al. (2009) in
the case of water and waste services.Other papers support this
idea1 in the specic case of water services(Garca-Snchez, 2006;
Garca-Rubio et al., 2009; Ordoez de Haroand Bru-Martnez, 2003) and
refuse collection services (Bosch et al.,2000).
However, the evidence is not overwhelming in other countries.In
general, in regard to refuse collection services, authors nd
thatprivate provision generates savings in costs, as in the study
byReeves and Barrow (2000) in Ireland, McDavid (2008) in
Canada,2
Dijkgraaf and Gradus (2003) in the Netherlands,3 Dijkgraaf et
al.(2003) in Denmark4 and Ohlsson (2003) in Sweden. For
waterservices, some authors do not nd a superiority of private or
publicprovision in the USA (Bhattacharyya et al.,
1994,1995;Wallsten andKosec, 2005), England and Wales (Saal and
Parker, 2001; Bottassoand Conti, 2003; Saal et al., 2007), Brazil
(Faria et al., 2005; SeroaDa Motta and Moreira, 2006; Sabbioni,
2008) and some countriesin Africa (Kirkpatrick et al., 2006). But,
at the same time, otherauthors nd that private provision is
preferable in Colombia(Arevalo and Schippener, 2002; Beato and Daz,
2003), Cote dIvoire(Collignon, 2002) and other countries in Africa
(Estache andKouassi, 2002), as well as Honduras (Daz, 2003) and
Argentina(Estache and Trujillo, 2003; Salatiel, 2003).
Water and waste disposal services have been the ones
moststudied, although some studies have addressed local police
(DezTicio and Mancebn, 2002; Drake and Simper, 2002,
2003;Garca-Snchez, 2007), public transport (Kerstens, 1999; Pina
andTorres, 2001; Garca-Snchez, 2009), re services (Cuenca,
1994;Kristensen, 1983; Ahlbrandt, 1973), and so on.
However, most studies are focused merely on the dichotomybetween
private and public management, and do not consider thedifferent
ways of providing public services through functional
de-centralisation. In addition, previous papers suffer other
limitationsas regards the samples selected and the number of
services ana-lysed. In general, their analyses are carried out in a
specic year, andso the real effect is difcult to observe.
Furthermore, only one ortwo services are included in most of the
studies, and so the evi-dence is not generalised for all public
services.
From the theoretical point of view, functional decentralisation
isdened as the creation of management units that are smaller
andmore exible with a business orientation (Aberbach and
Rockman,1999), which makes them more dynamic and enhances the
ef-ciency of public sector (Boyne, 1996), reducing bureaucratic
pro-cesses (Niskanen, 1971). The fact that management units
aresmaller and more exible makes them more dynamic and leads
1 Although this is the evidence most found, it must be pointed
out that Picazzo-Tadeo et al. (2007, 2009) nd that private
management is better.
2 This evidence is stronger in small municipalities.3 However,
the population does not experience this saving directly due to
the
scal system in the Netherlands.4 Private production is used more
in small municipalities. In addition, these au-
thors nd evidence in the opposite sense, that is, public
production is used more by
municipalities with high unemployment rates and by those that
receive high levelsof transfers.
-
users to express greater satisfaction. In addition, these
agencies are
nation of the inputs. The maximum is found by selecting the
3.1. Input and output variables for DEA index
According to Balaguer-Coll et al. (2010), the selection of
inputs isbased on budgetary variables that reect municipality costs
that inturn reect the economic structure of Spanish local
governmentexpenditures. In this sense, Spanish legislation denes
three basiccategories: current, capital and nancial expenditures.
Currentexpenditures are further divided into four categories, but
this papertakes only three of them into account: personnel
expenditure (X1);current goods and services expenditures (X2); and
current transfers(X3). Capital expenditures are also broken down
into real in-vestments (X4) and capital transfers (X5), which refer
to paymentsfrom institutions to nance certain investments.
The selection of outputs, Table 2, is based on the services
pro-vided by each municipality, and the classication of
municipalservices made by Prado-Lorenzo and Garca-Snchez (2006)
hasbeen adopted for it. In cases where similarities exist
betweenSpanish municipal services and the areas of competence of
otherEuropean local governments, the outputs were selected
accordingto several parallels with previous studies.
The emergency services item includes police and re services.The
police service pursues: (i) public safety through the preventionof
crimes and offences of any nature, patrolling the geographicalarea
of the town, and (ii) road safety, facilitating trafc ow. The
re
B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013)
23e3526optimal weights associated with the inputs and outputs.
Thehighest possible efciency reaches the value of 1, indicating a
pointon the frontier and hence a technically efcient DMU.
In this paper, in line with Prado-Lorenzo and
Garca-Snchez(2007), Garca-Snchez (2008) and Garca-Snchez et al.
(2011a,2011b), the indices of technical efciency were calculated
usingthe VRS5-DEA estimator with the application of bootstrapping,
andcalculated overall for each of the four sectors. We used
WilsonsSoftware Package for Frontier Efciency Analysis with R
(FEAR) toestimate bootstrapped technical efciency (Wilson, 1995).
Inaddition, based on our panel data, the analysis of the evolution
ofefciency was carried out using the Malmquist Productivity
Index(e.g. Garca-Snchez et al., 2011a, 2011b), originally developed
byCaves et al. (1982a, 1982b). From the point of view of outputs,
theseindices interpret the differences in productivity as the
differentcapabilities, given the restrictions imposed by
technology, forincrementing output without additional consumption
of resources(decreasing inputs without reducing outputs).closer to
citizens, so they have better knowledge of their prefer-ences and
needs (Hayek, 1945), thus, local government mayimprove public
services delivery, providing services faster (Downs,1967).
In addition, outsourcing is expected to improve efciency,because
management is in the hands of specialist suppliers(Cannadi and
Dollery, 2005; Gonzlez et al., 2011) that are accus-tomed to
incorporating performance criteria in public servicesdelivery. This
process may maximize economic efciency, reducinggovernment costs
and increasing the quality of public services as aresult of the
transfer of certain government functions to the privatesector where
they are left in the hands of specialist suppliers(Cannadi and
Dollery, 2005; Gonzlez et al., 2011).
Accordingly, we propose the following hypothesis that is thecore
of the paper:
Functional decentralisation and externalisation have a posi-tive
effect on local government efciency.
3. Measuring efciency
The literature reveals that a wide range of statistical
techniqueshas been used by different researchers to estimate
efciency.Among these techniques, Data Envelopment Analysis (DEA) is
themost commonly accepted because this methodology is superior
toestimations that use ordinary least squares, and is consistent
withthe denition of the production function (Russell, 1985).
The use of DEA techniques when multiple outputs are
producedoffers advantages such as: (i) allowing the overall
analysis of eachunit; not requiring prior denition of a production
function thatneeds the creation of a mythical unit with which to
perform thecomparison (Shang and Sueyoshi, 1995), (ii) providing
informationon the best practices for each inefcient unit, (iii)
allowing the in-clusion of exogenous variables as uncontrollable
inputs, and (iv) notrequiring the assumption of fullment of
statistical hypothesessuch as normality and absence of
heteroskedasticity.
DEA techniques measure the efciency of different units,
calledDecision Making Units (DMUs). In our case, these units are
localgovernments which provide the same municipal services.
Eachlocal government uses a vector X of inputs and produces a
vector Yof outputs. The efciency of a DMU is measured as the
maximumratio of the linear combination of the outputs to the linear
combi-5 VRS is the acronym of Variable Returns to Scale.service has
as its objective to reduce the probability of resoccurring and help
to limit losses in property and lives in res thatdo occur
(Schaenman and Swart, 1974). The probability of the respreading
will be represented using the variable density of popu-lation, in
line with Duncombe and Yinger (1993).
Utility services comprise the paving of public roads,
streetlighting and water supply and sewerage services. The rst
twoservices represent the civil construction works necessary
tomaintain road surfaces in good repair and adequate street
lighting.Water supply refers to the continual distribution of water
that hasbeen made drinkable and safe by means of various
preliminarytreatments, adapted to the daily demand of the
customers. Thepurpose of the sewerage service is to remove the
sewage origi-nating from both rainfall and from the return of the
drinking watersupply after it is used, which involves channelling
the sewage from
Table 2Output variables.
Municipal services Outputs
Protection or emergency servicesPolice services (public and road
safety) Surface area (Y1)
Number of vehicles encirculation (Y2)
Fire prevention and extinguishing Population density (Y2)Utility
servicesPaving of public roads and accessPublic street lighting
Surface area (Y1)Supply of drinking water and sewerageSupport
services and transportationStreet cleaning, waste collection
and
treatmentSurface area (Y1)
Public transport Population (Y3)Surface area (Y1)
Planning servicesUrban planning Surface area (Y1)Urban
management Taxes on construction (Y4)Human and health
servicesSocial services Unemployed population (Y5)Culture and
sports Population (Y3)Environmental protection and
public parksSurface area (Y1)Number of economic activities
(Y7)
Health services Number of economic activities (Y6)Source: The
authors
-
the place where it is generated or where user consumption
occursto water treatment plants. All of these services are
represented bythe street infrastructure surface area, which
identies the kilo-
total tax collection of local government.
Following Banker et al. (1984), the variable returns to scale
(VRS)
B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013)
23e35 27Human and health services include social services, upkeep
ofcemeteries, culture and sports, as well as environmental
protectionand business regulations in matters of health and
consumer pro-tection. In general, these services are meant to
attain and guaranteebasic welfare for certain social groups with
special needs or situa-tions, as well as the general population
through control of airquality, etc.
3.2. Annual efciency
DEA is a multiple-input and multiple-output production
tech-nology, where inputs x C Rd are used in the production of
outputsy C Rp and can be represented by the production set j of
attainableinputeoutput combinations:
j n
x; yRpd : x can produce y
o:
The technology is dened as L(y) {x: (x, y) C j}.The value of the
efciency measure is given by q(x, y) jjxjj/jjxfjj,where q(x, y) min
{q: qx C L(y)}, xf C IsoqL(y) {x:x C L(y), mx; L(y), m < 1}, is
the frontier input.
A unit is considered technically efcient if the efciency
mea-sure equals one. Following Charnes et al. (1978), the constant
returnto scale (CRS) DEA efciency estimator, qCRS, is given by qCRS
min{q:q xi C LnCRS (yi)}, where xi is the d-vector of inputs and yi
is thep-vector of outputs. LnCRS (yi) is the piece-wise linear
conical hull ofthe data, dened by LnCRS (yi) {x: yi Yz, x Xz, z C
Rn}. WhereY (y1, y2,., yn) is a (p n) matrix of outputs, X { x1,
x2,., xn} is a(d n)matrix of inputs and z is a n-vector of
non-negative intensityvariables.
6 The waste is deposited by the residents in metallic or
polyethylene containersmetres of infrastructure needed for paving
and street lighting andto supply water or remove sewage.
The support services and transport group comprises: (i)
streetcleaning, which consists of the manual or mechanical washing
ofthe town streets and paved surfaces, (ii) collection of
municipalsolid waste that is generated in households, industries,
shops andofces, provided that it is not classied as hazardous6; and
(iii)public transport, which provides mobility for citizens within
themunicipal area. In addition, political authorities usually
imposeobligations on public transport companies, and these
obligationscan be manifested in different ways: a minimum level of
service forthose users that do not have other means of transport or
main-taining routes that are not economically justiable.
Urban planning services deal with the architectural ordering
ofthe town, and involve the suitable distribution of residential
areas,parks, leisure spaces, etc., as well as verication that the
planningproposed is adapted to the town. The importance of this
service isdue not only to town planning or to ensuring that
building regu-lations are fullled, but to the fact that it is the
municipal servicethat generates the most resources for the local
council. The taxeslinked to urban development are very important
for towns, spe-cically the Real Estate Tax (IBI), the Tax on
Construction, In-stallations and Works (ICIO) and the Tax on the
Added Value ofUrbanized Land, which together comprise more than 65%
of thedistributed throughout the urban surface area that are then
emptied into collectionvehicles.DEA efciency estimator is given by
the solution of the linearprograms qVRS min {q: qxi C LnVRS(yi)}.
LnVRS(yi) is the piece-wiselinear convex hull envelopment of the
observed sample xn givenby LnVRS(yi) { x: yi Yz, x Xz, Sni 1zi 1, z
C Rn}.
According to Simar and Wilson (1999), the safest approach
inestimating efciency, which avoids a possible misspecication, is
touse the VRS estimator.
As a result of the advancement in the development of
bootstraptechniques (Simar andWilson, 2000a, 2000b), we decided to
applyresampling methods and bootstrapping techniques, in
accordancewith Simar and Wilson (1998). The SW-algorithm7 is given
by thefollowing steps:
1) Transform the inputeoutput vectors using the original
ef-ciency estimates {q, i 1,., n} as (xif, yi) (xi q, yi).
2) Generate smoothed resample pseudo-efciencies gi* asfollows:
Given the set of estimated efciencies {q} use h 0,90n1/5 min {sq,
R13/1.34} to obtain the bandwidthparameter h.
Generate {di*} by resampling, with replacement, from
theempirical distribution {q} of the estimated efciencies.
Generate the sequence {di*} using di* di* hi* ifdi* hi* 1; 2
(di* hi*) otherwise.
Generate the smoothed pseudo-efciencies {gi*} usinggi* di* (di*
di*a)/O1 h2/sq2.
3) Let the bootstrap pseudo-data be given by (xi*, yi*)
(xif/gi*, yi).
4) Estimate the bootstrap efciencies using the pseudo-data
andthe linear program LnVRS(yi) { x: yi Yz, x Xz,Sni 1zi 1, z C R
n} as qSW* min{ q: yi Yz, qxi X*z,Sni 1 zi 1, z C R n}.
5) Repeat steps 2e4 B times to create a set of B
unit-specicbootstrapped efciency estimates qSW*b, i 1,., n, b 1,.,
B.
Table 3 includes a year by year summary of the main variables
inthis estimation. On average, in all analysed years the annual
ef-ciency index (vdhat) about the provision of public services
isclose to 1 (around 0.97), which represents the perfect
efciency,and the average is lower only in 2002 (0.9632). However,
the ef-ciency index is lower when we apply the bootstrap
techniquewhich takes account of slack efciency measures, specically
inyears 2002, 2003, 2006 and 2007.
3.3. Inter-annual evolution of efciency
The denition of the Malmquist indices can be made in
thefollowing terms: the starting point is a group of production
possi-bilities, St: St {(xt, yt)jxt can introduce yt, t 1,., T
wherext Inputs vector in t and yt Outputs vector in t.
Assuming that such a group complies with the
requirementsestablished by Shephard (1970), we can establish an
input distancefunction, whose inverse represents ameasure of
technical efciency.
Dtixti ; y
ti sup
nq < 0 :
xtiq; yti
3STo
This function takes values ranging between zero and one.
Thus,when a decision unit is efcient, its distance function will be
one,and if it is inefcient, its valuewill be lower than one and the
higherits inefciency level is, the nearer to zero it will be. In
that case, andas a factor-oriented radial indicator, we could
conclude that it is7 SW-algorithm means Simar and Wilsons
algorithm.
-
values between zero and one. On the other hand, Dtxt1; yt1
is
the same time, these administrations are severely limited in
their
Table 3Descriptive statistics of annual efciency.
cien
ror)
599602546663520546377506523
B. Cuadrado-Ballesteros et al. / Uti28i i ithe distance function
establishing a comparison of productivity ofcompany i during period
t 1, with respect to the technology ofperiod t, that is, the
proportional variation that should occur in theinput vector in t 1
to be over the frontier in t.
An index higher than 1 indicates that the total factor
produc-tivity has increased from period t to period t 1; values
lower than1 imply a decrease with respect to the most efcient
units; and,nally, when the index takes value 1, it means a stable
situation.
Table 3 includes a year by year summary of this estimation.
Itshows that the mean of the Malmquist index is higher than 1 in
allyears, and so the total factor productivity has risen on average
fromperiod t to t 1 in Spanish municipalities.
4. Empirical research design
4.1. Sample for the analysis
The data employed correspond to the 129 local governmentswhose
budgetary information was included in the Spanish PublicSector
Database (BADESPE) for the period 1999e2007, inclusive. Itincludes
all provincial capitals and almost all municipalities with
apopulation of 10,000 ormore. Other datawere obtained from the
LaCaixa Annual Statistical Report and the Spanish Statistical
Institute.possible to reduce the use of inputs in the proportion
includedbetween the value of the distance function and one.
The distance functions so-dened constitute the foundations
tocreate the Malmquist productivity indices.
Mtixti ; y
ti ; x
t1i ; y
t1i
D
ti
xti ; y
ti
Dtixt1i ; y
t1i
Here, Dti xti ; yti represents the distance function of unit i
duringperiod t (taking the technology of period t as a reference),
taking
Annual efciency (vdhat) Bootstrap ef
Mean (std. error) Std. deviation Mean (std. er
1999 0.97597 (0.006448) 0.073235 0.95357 (0.002000 0.97326
(0.006573) 0.074657 0.94457 (0.002001 0.97744 (0.005881) 0.066794
0.95349 (0.002002 0.96318 (0.007393) 0.083964 0.92767 (0.002003
0.96961 (0.006001) 0.068161 0.93054 (0.002004 0.97643 (0.005897)
0.066975 0.95194 (0.002005 0.97992 (0.004341) 0.049300 0.95093
(0.002006 0.97008 (0.005849) 0.066432 0.93256 (0.002007 0.96907
(0.006011) 0.068276 0.92729 (0.00In Spain, which is well behind the
leading countries in incor-porating NPM reforms (Hood, 1996), there
have nevertheless beenimportant developments in the functional
decentralisation8
(Cuadrado, 2008) and externalisation processes (Rami-Matasand
Garca-Codina, 2006), especially in local governments,
ad-ministrations that have tended to use these processes, instead
ofdirect management, for delivering public services to citizens
withthe aim of taking advantages of characteristics of the private
sector.
The local sphere allows us to obtain a larger volume of
data;moreover, these data are more homogeneous than
comparisonsbetween different countries (Garca-Snchez et al.,
2011c). In addi-tion, their proximity to citizens and their daily
lives allows
8 Cuadrado (2008) shows that the number of public enterprises
and entitiesowned by municipalities and communities raised
three-fold in the last decade.capacity to satisfy the populations
demands owing to their oftendelicate nancial situation. Therefore,
this level of public adminis-tration may resort to the functional
decentralisation of municipalservices as a means of obtaining a
larger volume of public funds(Escudero, 2002). All of this may
affect the efciency of local gov-ernments, so this makes
Spanishmunicipalities a suitable setting foranalysis.
However, the high number of Spanish municipalities and
thedisparities among them require a criterion be applied to select
asample. The most adequate criterion is related to the size of
thepopulation (Benito et al., 2010b; Navarro et al., 2010;
Guillamnet al., 2011; Navarro-Galera and Rodrguez-Bolvar, 2011).
Weselected the largest municipalities because they are the only
onesobliged by law to provide their citizens with all the services
listed inthe Local Government Regulatory Law, so the results take
into ac-count more services than those that would be considered in
asample using smaller municipalities.
Furthermore, the reform processes postulated by the New
PublicManagement (NPM) paradigm are much better adapted to
largecities than to the smallest municipalities, where management
ismuch more informal, and it is the responsibility of a single
inhab-itant, termed a non-professional mayor. These small villages
maycount on an administrative expert, available one day a week,
toresolve specic problems. However, in larger municipalities,
theelectoral candidates are professional politicians who have a
closerelation with the national party administration and who
aretherefore aware of the potential repercussions of their actions
atthe local level on national elections (Carrillo, 2009). For
thesereasons, and in accordancewith Prado-Lorenzo and
Garca-Snchez(2007), it is not necessary to include the smaller ones
in this study.
4.2. Dependent and independent variablesadministrations to know
better the needs of their citizens; but, at
cy (vdhat_bc) Inter-annual variation of efciency
Std. deviation Mean (std. error) Std. deviation
6) 0.0680976) 0.068443 1.7145 (0.2340) 2.6576777) 0.062094
2.2867 (0.3552) 4.0347012) 0.075328 1.4857 (0.1941) 2.2044659)
0.059165 2.2749 (0.4621) 5.2481719) 0.062112 1.8760 (0.2942)
3.3411006) 0.042892 1.6168 (0.2422) 2.7509547) 0.057545 1.2506
(0.1082) 1.2293924) 0.059447 1.5639 (0.1733) 1.968850
lities Policy 26 (2013) 23e35The dependent variables correspond
to the annual efciencyindex obtained by the DEA methodology, as
well as the Malmquistindex, which represents their evolution.
The independent variables correspond to the externalisationand
functional decentralisation processes carried out in the
localadministrations of large municipalities. Concretely, the
variablesemployed are:
TOTAL_DECENTRALISATION: numerical variable that repre-sents the
number of functional decentralised agencies createdin each
municipality. This process may be carried out by:B COMPANIES:
number of government owned public com-panies created by each local
government.
B AUTONOMOUS ORGANISATIONS (AAOO): number ofautonomous bodies
created by each local government.
-
4.3. Control variables
can control expenditure with fewer difculties in relation to
/ UtiIn order to avoid biased results, several control variables
havebeen included in order to represent the economic and tourist
leveland political factors. They are as follows:
GDP_pc: income level is measured using the variable
grossdomestic product per capita. It has been shown that the
higherthe citizens economic level, the greater the income local
gov-ernment collects, and the less pressure exists on politicians
andmanagers to be efcient in the provision of municipal
services(Spann, 1977; Silkman and Young, 1982). In a similar way,
DeBorger and Kersten (1996) nd that a higher economic levelis
linked to more inefciency. However, when Gimnez andPrior (2003)
analysed the impact of municipal economic levelon efciency, they
concluded that differences in economic levelare not signicant when
evaluating efciency.
TOURISM_INDEX: Mathieson and Passell (1976), Dez-Ticio
andMancebn (2003) and Garca-Snchez (2006) explain that sea-sonal
populations have an important impact on municipal ser-vices given
that they increase the demand for the servicesdesigned to satisfy
citizensneeds. However, ifwe examine otherinvestigations of the
tourist condition and overall municipalefciency, we see there is no
agreement in the literature. Boschet al. (2000) posit that the
tourist level of themunicipality has animpact on efciency,
specially related to the refuse collectionservices, because in some
cases, the population of very touristmunicipalities is above their
normal resident population. But incontrast, Bel (2006) concludes
that tourist activity is not signif-icantwhen it comes to assessing
the efciency ofmunicipalities.
RIGHT_IDEOLOGY: dummy variable that takes a value of 1 ifthe
governing party is conservative, and 0, otherwise. It isB PUBLIC
BUSINESS ENTITIES (PBE): number of municipalbusiness entities
created by each local government.
B FOUNDATIONS: number of municipal foundations createdby each
local government.
EXTERNALISATION: numerical variable that represents thenumber of
private agencies that have acquired the right toprovide public
services in each municipality.
MIXED_COMPANIES: numerical variable that represents thenumber of
mixed companies that are created in each munici-pality. Both public
and private sectors are owners of thesecompanies.
In addition, we include the following variables that
representthe number of the different agencies created by right-wing
parties.The use of decentralised agencies with the aim of
increasing thelevel of public debt is more used by left-wing
parties (Cuadrado-Ballesteros et al., 2013b). So, maybe the
right-wing parties usethese entities with the aim of raising the
efciency.
RIGHT_TOTAL_DECENTRALISATION, RIGHT_COMPANIES,RIGHT_AAOO,
RIGHT_PBE, RIGHT_FOUNDATIONS, RIGHT_-EXTERNALISATION,
RIGHT_MIXED_COMPANIES: variablesthat were calculated as the product
of RIGHT_IDEOLOGY andthe variables that represent the different
modes of public ser-vices delivery. These variables show the
decentralised andexternalised entities that have been created by
right-wingparties. With them we want to test if right-wing parties
arein favour of private control mechanisms in order to
improvepublic sector efciency (Borge et al., 2008), such as it
iscommonly assumed.
B. Cuadrado-Ballesteros et al.commonly assumed that right-wing
parties are in favour ofother parties, and so efciency may not be
the criterion usedwhen local governments have to decide how public
servicesare to be managed and a negative relationship between
elec-toral support and efciency of public services has been
found(Balaguer-Coll et al., 2007).
4.4. Research models
In order to achieve the proposed aim of analysing the effect
offunctional decentralisation and externalisation processes on
theefciency of local public services, and based on the
variablesselected, we estimated the following models, in which
efciencyindexes depend on the modes of public services delivery
(func-tional decentralisation and externalisation) and on different
controlvariables included to avoid biased results.
Efficiency b0 b1Decentralisationit b2EXTERNALISATIONit b3MIXED
COMPANIESit b7RIGHT IDEOLOGYit b8POLITICAL COMPETITIONit
b9STRENGTHit b11TOURISM INDEXit b10GDP pcit b4RIGHT
Decentralisationit b5RIGHT EXTERNALISATIONit b6RIGHT MIXED
COMPANIESit 1i m1it
[1]
where,
Efciency represents different kinds of efciency: (i)
annualefciency; and (ii) the inter-annual variation of
efciencyintroducing budget discipline (Allers et al., 2001) and
privatecontrol mechanisms in order to improve public sector
ef-ciency (Borge et al., 2008). However, previous evidence
iscontradictory: Vanden et al. (1993) and Benito et al. (2010a)
donot nd a signicant inuence of the political ideology of
theincumbents. In contrast, De Borger and Kersten (1996), and
DeGrauwe (1985) observed a direct relationship between pro-gressive
parties and local authorities efciency.
POLITICAL_COMPETITION: numerical variable that
representspolitical rivalry. It is measured according to Sol (2006)
as thedifference between the percentages of votes obtained by
theparties coming in rst and second place. Based on the
WeakGovernment Hypothesis, the intuition is: the higher
thecompetition, the higher the efciency through
higheraccountability, because politicians will be pressed to
assignbetter available resources if they have more opponents for
theelections. This hypothesis shows that fragmentation has
anegative effect on decision-making power, and so it impacts onthe
ability of governments to be efcient (Roubini and Sachs,1989;
Volkerink and de Haan, 2001; Ashworth et al., 2005,2006; Coff and
Geys, 2005; Goeminne et al., 2007). In addi-tion, political
competition prevents politicians from extractingrents in exchange
for services (Fisman and Gatti, 2002), and sothey can focus on
providing services efciently.
STRENGTH: numerical variable identifying the electoral sup-port
the local government obtained in the latest elections,represented
by the percentage of seats obtained by the gov-erning party. If the
governing party has an absolute majority, it
lities Policy 26 (2013) 23e35 29measured by the Malmquist
index.
-
Decentralisation represents each of the different decentral-ised
entities: COMPANIES, AAOO, PBE and FOUNDA-TIONS, and all of them
jointly (TOTAL_DECENTRALISATION).i indicates the municipality and t
refers to the time period,b are the parameters to be estimated,i
represents the persistent unobserved heterogeneity,mit represents
the classic disturbance term.
To estimate these models, we use truncated regressions,
whichhave been shown by Simar andWilson (2007) to provide better
andconsistent statistical inference than Tobit regressions. These
au-thors showed that using the Tobit regression (also called a
censoredregression model) is an inappropriate approach. Moreover,
theyjustied a truncated regression, because of its satisfactory
perfor-mance in Monte Carlo experiments.
It is worth noting that the Tobit model is designed to
estimatelinear relationships between variables in cases where the
depen-dent variable shows either left or right censoring. When
censoringvariables, it is common to set a threshold, so that there
can becensoring above that threshold (which takes place in cases
with a
Table 4 provides the descriptive statistics for independent
var-iables, showing that, on average, each municipality used
sevendecentralised entities between 1999 and 2007 (see mean
ofTOTAL_DECENTRALISATION). Of these, two or three were
publiccompanies, three or four were autonomous organisations, and
atmost, one foundation or public business entity was used. Of
thesemunicipalities, 49.35% were governed by right-wing parties
(seemean of RIGHT IDEOLOGY). In addition, the difference between
thepercentages of votes obtained by the parties coming in rst
andsecond place is about 0.17 and the percentage of seats obtained
bythe governing party is 0.46 on average.
5.2. Explanatory analysis
Table 5 shows the effect of the different modes of public
servicesdelivery on the inter-annual variation in local government
ef-ciency. Model 1 takes into account the three general modes
ofpublic services delivery: functional decentralisation,
externalisa-tion andmixed companies. Only EXTERNALISATION is
statisticallysignicant at the 90% condence level, with a negative
effect on the
061054457753417278141353917281.79855468956642922838950
B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013)
23e3530value at or above that threshold) or below the threshold
(values thatfall at or below, that are nally censored). With
censored variables,all observations are in the dataset, but the
real values of some ofthem are not known. With truncation some of
the observations arenot included in the analysis because of the
value of the variable.
Specically, we apply Simar and Wilsons (2007) Algorithm#1.This
process is carried out in a way similar to that used for
theevolution of productivity estimated through the Malmquist
Index.The truncated regression is estimated in Stata, since this
softwarelets us treat information as panel data.
5. Empirical results
5.1. Descriptive analysis
Table 3 presents the statistics for the dependent variables
dis-cussed above. Over the entire period considered, mean annual
ef-ciencies increased by around 97%, although the index presents
alower value when bootstrapping processes are used (these
pro-cedures guarantee the validity of efciency measures
againstsample modications). A Malmquist index higher than one
in-dicates a positive evolution of local government efciency
from1999 to 2007.
Table 4Descriptive statistics.
Variable Obs Mean
COMPANIES 1161 2.689FOUNDATIONS 1161 0.217AAOO 1161 3.357PBE
1161 0.100TOTAL_DECENTRALISATION 1161 6.364EXTERNALISATION 1161
1.796MIXED_COMPANIES 1161 0.255POLITICAL_COMPETITION 1161
0.175STRENGTH 1161 0.468TOURISM_INDEX 1030 412.1GDP_pc 1161
1845RIGHT_COMPANIES 1161 1.087RIGHT_FOUNDATIONS 1161
0.096RIGHT_AAOO 1161 1.490RIGHT_PBE 1161
0.014RIGHT_TOTAL_DECENTRALISATION 1161 2.689RIGHT_EXTERNALISATION
1161 0.907RIGHT_MIXED_COMPANIES 1161 0.136
Frequency
RIGHT_IDEOLOGY 0.4935401level of annual efciency. Of the control
variables, POLITICAL_COMPETITION and TOURISM_INDEX are
statistically signicantat 95% and GDP_pc is signicant at 90%; all
of these have anegative impact on the efciency index.
Models 2, 3, 4 and 5 show the results for each type of
decen-tralised entity. In Model 2, the statistically signicant
variables inthe analysis are COMPANIES and EXTERNALISATION, at the
90%condence level, and with a negative effect on the annual
ef-ciency. POLITICAL_COMPETITION, TOURISM_INDEX andGDP_pc are also
statistically signicant at 95%, also with anegative effect on the
efciency index.
For Model 3, the statistically signicant variables are
FOUN-DATIONS and EXTERNALISATION, with a negative impact on
theannual efciency of local governments. In addition,
POLITICAL_-COMPETITION and GDP_pc are signicant at the 95% and
90%condence levels, respectively. All of these negatively affect
thelevel of annual efciency of local governments. For Model
4,EXTERNALISATION, POLITICAL_COMPETITION and TOUR-ISM_INDEX are
statistically signicant at 90%, 95% and 99%,respectively. Again,
all have a negative effect on the efciency in-dex. Autonomous
organisations have a positive effect on efciencyalthough this is
not statistically signicant. Finally, in Model 5, therelevant
variables are PBE and RIGHT_PBE, at the 99%
Std. dev. Min Max
3.723498 0 273 0.7983292 0 7
3.309685 0 192 0.4635036 0 4
6.348831 0 430.7462709 0 30.4539323 0 2
2 0.1258471 0 0.67 0.0919993 0.25 0.76
1085.503 0 98985079.808 0 33834.272.213018 0 21
6 0.5455111 0 72.517551 0 14
5 0.1460724 0 24.446267 0 32
1 1.042683 0 39 0.3634424 0 2
-
Table 5Effects of public services delivery on annual
efciency.
Model 1 Model 2 Model 3 Model 4 Model 5
Coef. Std. err. Coef. Std. err. Coef. Std. err. Coef. Std. err.
Coef. Std. err.
TOTAL_DECENTRALISATION
0.0005976 0.0004305
COMPANIES 0.001272*** 0.0007054FOUNDATIONS 0.0078243**
0.0039844AAOO 0.0002047 0.0007788PBE 0.0231262*
0.0048902EXTERNALISATION 0.0062189*** 0.0035568 0.0066029***
0.0035601 0.0058448*** 0.0035368 0.0064587*** 0.0035671
0.0061333*** 0.0035202MIXED_COMPANIES 0.0067483 0.006611 0.0056126
0.0066458 0.007004 0.0066111 0.0067958 0.0066639 0.0046386
0.0065612RIGHT_IDEOLOGY 0.0164057 0.0125964 0.0147025 0.0125764
0.0017757 0.0110831 0.013654 0.0117693 0.0143366 0.0110436POLITICAL
COMPETITION 0.0687855** 0.0281629 0.0647501** 0.0285228 0.0662563**
0.0278854 0.069435** 0.0279451 0.0619545** 0.0277767STRENGTH
0.0352038 0.0391009 0.0304355 0.0394346 0.0323407 0.0386573
0.0364308 0.0388514 0.0192875 0.0389877TOURISM_INDEX 5.26E-06**
2.24E-06 4.71E-06** 2.11E-06 1.00E-06 2.27E-06 7.02E-06* 1.96E-06
2.70E-06 1.93E-06GDP_pc 8.55E-07*** 4.78E-07 9.69E-07** 4.77E-07
8.67E-07*** 4.70E-07 7.34E-07 4.82E-07 7.34E-07
4.70E-07RIGHT_TOTAL_
DECENTRALISATION0.0011134 0.0007126
RIGHT_COMPANIES 0.001748 0.0013048RIGHT_FOUNDATIONS 0.008313
0.0051775RIGHT_AAOO 0.001788 0.0012721RIGHT_PBE 0.0377766*
0.014044RIGHT_EXTERNALISATION 0.0061065 0.0055127 0.0062983
0.0055993 0.0030465 0.0054006 0.0057308 0.005415 0.0064479
0.0053892RIGHT_MIXED_
COMPANIES0.0144621 0.0090494 0.0140305 0.0090927 0.01833**
0.0089124 0.0141688 0.0089628 0.0127415 0.0088267
d01 0.0015861 0.0079022 0.0019085 0.0078995 0.001823 0.0078528
0.0011998 0.0078992 0.001358 0.0078203d02 0.0236007* 0.0079634
0.0231721* 0.0079586 0.0232958* 0.0079099 0.0241457* 0.0079614
0.023871* 0.0078774d03 0.0211367* 0.0080726 0.020612** 0.0080716
0.0199449** 0.0080022 0.0216046* 0.0080563 0.0207751* 0.0079722d04
0.0010971 0.0082423 0.0017576 0.0082378 0.0039002 0.0081867
0.0003005 0.0082141 0.0012284 0.008123d06 0.0161772*** 0.0086989
0.0149648*** 0.0086892 0.0121844 0.0086274 0.01734** 0.0086603
0.0162023** 0.0085337d07 0.0215921** 0.0088933 0.0199874**
0.0088653 0.0162781*** 0.0088221 0.0229476* 0.008864 0.0213484**
0.0086981_cons 0.9792882* 0.0185391 0.9826596* 0.018695 0.9737542*
0.0180201 0.9731865* 0.0181706 0.9820339* 0.0180858
B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013)
23e35 31condence level, EXTERNALISATION at 90% and
POLITICALCOMPETITION at 95%. All of them have a negative effect on
theannual efciency, except the public business entities created
by
*, ** and *** indicate signicance at the 1%, 5% and 10% level,
respectively.right-wing governing parties.
Table 6Effects of public services delivery on inter-annual
variation of efciency.
Model 1 Model 2 M
Coef. Std. err. Coef. Std. err. C
TOTAL_DECENTRALISATION
0.0091361 0.0231884
COMPANIES 0.0058966 0.0381822FOUNDATIONSAAOOPBEEXTERNALISATION
0.2335579 0.1918028 0.2309398 0.1921229MIXED_COMPANIES 0.2746374
0.3569369 0.275391 0.3590955 RIGHT_IDEOLOGY 0.2300469 0.6828895
0.0613953 0.6829815POLITICAL COMPETITION 0.2077118 1.519295
0.3880838 1.539445 STRENGTH 1.703228 2.100597 1.935057
2.120794TOURISM_INDEX 0.0000128 0.0001233 0.0000723 0.0001161
GDP_pc 6.53E-06 0.0000253 9.93E-06 0.0000253RIGHT_TOTAL_
DECENTRALISATION0.0139371 0.0379715
RIGHT_COMPANIES 0.0040536 0.0689636RIGHT_FOUNDATIONS
RIGHT_AAOORIGHT_PBERIGHT_EXTERNALISATION 0.1765492 0.2992764
0.1286283 0.304284 RIGHT_MIXED_
COMPANIES0.8539368*** 0.4891089 0.9225768*** 0.4918457
d01 0.5618015 0.3985466 0.202138 0.4415601d02 0.243163 0.4004236
0.7556573 0.43032d03 0.5526443 0.4048597 0.0535627 0.4231281d04
0.1560998 0.4121769 0.728637 0.4147804d06 0.4776747 0.4332463
0.3216144 0.4080228d07 0.1401369 0.4427806 0.330265 0.3981349 _cons
0.5217489 1.007036 0.1513473 1.11897
*** indicates signicance at the 10% level, respectively.Our
results show that externalisation is harmful to efciency inSpanish
local government, which is in accordance with the popularview of
this question, i.e. that the involvement of the private sector
in the provision of public services does not guarantee
greater
odel 3 Model 4 Model 5
oef. Std. err. Coef. Std. err. Coef. Std. err.
0.257407 0.20724140.0384311 0.0422394
0.0578194 0.26741760.2193783 0.1917771 0.2489577 0.1922449
0.2282207 0.19175140.2371746 0.359058 0.23794 0.3595147 0.2837442
0.35802620.1042354 0.6043279 0.1941308 0.63648 0.1205084
0.60345170.2609327 1.512196 0.3632296 1.508047 0.2685288
1.5146011.867416 2.087367 1.899719 2.086007 1.690349
2.1147790.0001379 0.0001256 5.98E-06 0.000107 0.0000533
0.00010710.0000103 0.0000251 5.39E-06 0.0000255 0.0000103
0.0000251
0.1487092 0.27175690.0245625 0.0682654
0.3477093 0.79946560.1181388 0.2946633 0.1662639 0.2936056
0.1531666 0.29490720.887546*** 0.4847455 0.828402*** 0.4840236
0.9194603*** 0.4822358
0.2687994 0.4421376 0.1473583 0.4407579 0.2007161
0.43735850.818402 0.4314155 0.7098484 0.4297969 0.755237***
0.42714930.0087993 0.4245843 0.0921647 0.4221976 0.0542091
0.4202270.795366 0.4175159 0.6983579 0.4152015 0.7244367***
0.41334860.3476551 0.4079864 0.3002798 0.4087686 0.3187414
0.40729390.3216357 0.3980518 0.3364651 0.3980037 0.3321873
0.39803740.1039804 1.075853 0.3749493 1.078355 0.2640827
1.078748
-
decentralisation. Moreover, these studies often present other
lim-
/ Utiefciency, such as Bel andWarner (2008) and Bel et al.
(2009) in thecase of waste disposal and water services in Spain, by
Garca-Snchez (2006), Garca-Rubio et al. (2009) and Ordoez de
Haroand Bru-Martnez (2003) for water services in Spain, and byBosch
et al. (2000) for waste disposal services in Spain. Thisconclusion
has also been reached in studies elsewhere, for examplein the USA
(Bhattacharyya et al., 1994, 1995; Wallsten and Kosec,2005),
England and Wales (Saal and Parker, 2001; Bottasso andConti, 2003;
Saal et al., 2007), Brazil (Faria et al., 2005; Seroa DaMotta and
Moreira, 2006; Sabbioni, 2008) and some countries inAfrica
(Kirkpatrick et al., 2006).
The same results are also applicable to the functional
decen-tralisation process: a negative impact on efciency is caused
by allkinds of entities, especially companies, foundations. It
means thatthese agencies produce poor coordination, overlapping
functionsand the misuse of resources (Rhodes, 1994). In this
respect, ac-cording to Talbot and Johnson (2007) and Andrews and
Boyne(2009), the evidence suggests that large bureaucracies
arecheaper and that regrouping processes should be
encouraged.However, when public business entities are created by
right-wingparties, they have a positive impact on the annual
efciency ofthe local government.
Table 6 shows the effects of the modes of public services
de-livery on the inter-annual variation of the efciency. In all
models,the only relevant variable is RIGHT_MIXED_COMPANIES, with
apositive effect on this variation. Thus, the use of mixed
companiesby right-wing parties does increase the inter-annual
efciency inSpanish local government. Thus, to a certain extent,
there is arelation between the political ideology of the governing
party andthe level of local government efciency, as reported by De
Borgerand Kersten (1996) and De Grauwe (1985). However, their
resultsare contrary to ours.
Finally, our ndings show that annual efciency is lower
inmunicipalities that are characterised by high political
competition,as was expected, because political competition prevents
politiciansfrom extracting rents in exchange for services (Fisman
and Gatti,2002), and so they must focus on providing services
efcientlyand on increasing their decision-making power, and this
againimpacts on local government efciency (Roubini and Sachs,
1989;Volkerink and de Haan, 2001; Ashworth et al., 2005, 2006;
Coffand Geys, 2005; Goeminne et al., 2007). GDP was not found to
bevery signicant in our analysis, which is in accordance withGimnez
and Prior (2003). The tourism index impacts negatively onthe annual
efciency, according to Bosch et al. (2000).
6. Conclusions
There is generalised concern about the ineffectiveness and
in-efciency detected in the rendering of public services at all
levels,these failings normally being associated with bureaucracy
andpolitical incompetence, and closely linked to the very nature
ofpublic assets (Prado-Lorenzo and Garca-Snchez, 2010).
In order to overcome these problems, international studies
haveled to the design of a new public operating system. The aim of
thisnew approach is to achieve a public sector which operates
exclu-sively in areas where there does not exist a more suitable
provider,which might render the service effectively and efciently
(Pilcher,2005). To do so, the public sector externalises public
serviceswhenever possible or collaborates with the private sector
to meetcitizens needs. Moreover, internal restructuring is carried
out, toeliminate bureaucracy, adopt more rational processes and
obtaingreater autonomy in management by the creation of
decentralisedunits (Greiling, 2006; Kolthoff et al., 2007).
The empirical evidence compiled to date is contradictory as
B. Cuadrado-Ballesteros et al.32regards the best form of
management for public services, and noitations: in general, their
analyses are carried out only for onespecic year, and so the real
effect is not apparent; and/or theyfocus only on one specic region;
and/or only one or two servicesare addressed. These factors mean
that the evidence obtainedcannot be generalised to all public
services.
Therefore, the aim of the present study is to analyse the effect
ofprocesses of functional decentralisation and externalisation on
theefciency of Spanish public services, in order to contribute to
theempirical evidence available on this question. For this purpose,
weexamined 129 Spanish municipalities with populations of
over10,000 for the period from 1999 to 2007, inclusive.
Furthermore, toobtain more precise ndings, the different forms of
functional de-centralisationwere disaggregated according to the
legal form of theorganisation (public companies, autonomous
organisations, publicbusiness entities and foundations).
The results obtained show that involving the private sector
inpublic services delivery through outsourcing improve neither
thelevel of annual efciency nor the inter-annual variation of this
levelof local governments in Spain. Similar effects were observed
fordecentralised entities, especially public companies and
foundations.
However, the public business entities could improve the level
ofannual efciency in Spanish local governments and the combina-tion
of public and private sector delivery, in the form of
mixedcompanies, may increase the inter-annual efciency of public
ad-ministrations. But this effect is observed when such
agencies(public business entities and mixed companies) are created
byright-wing governing parties.
This means that rationales proposed to use functional
decen-tralisation and externalisation for public services delivery
havelimitations focussing efciency. Probably, problems of
coordinationand overlapping of activities and resources reduce
efciency oflocal governments. In the case of externalisation
processes, theintroduction of private sector for public services
delivery may havethe potential to produce considerable fraud and
corruption becausepoliticians intervene too often in the selection
of providers, thussome cases of favouritism in the allocation of
contracts may beoccurred. In these cases, politicians are not
worried about efciencyof local government; they have opportunistic
behaviour instead ofworking for social welfare of citizens.
Our results show that only public business entities and
mixedcompanies may improve the efciency of public
administrations,however, these agencies are the less used in Spain
(Cuadrado-Ballesteros et al., 2013a). So, efciency is an important
aspect tobe improved in Spanish local governments, focussing public
ser-vices delivery.
Future lines of research could nd this paper limited. Specially,
itwould be interesting to increase the sample, taking into
accountinformation about a larger period of time and more local
govern-ments. In addition, it could be interesting do a comparative
analysisbetween local governments of different countries, taking
into ac-counting socioeconomic and cultural aspects.
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23e35 35
Effect of modes of public services delivery on the efficiency of
local governments: A two-stage approach1 Introduction2 Modes of
public services delivery and efficiency of local government:
research hypotheses2.1 Modes of public services delivery at local
level in Spain2.2 The efficiency of local governments
3 Measuring efficiency3.1 Input and output variables for DEA
index3.2 Annual efficiency3.3 Inter-annual evolution of
efficiency
4 Empirical research design4.1 Sample for the analysis4.2
Dependent and independent variables4.3 Control variables4.4
Research models
5 Empirical results5.1 Descriptive analysis5.2 Explanatory
analysis
6 ConclusionsReferences