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Cost Inefficiency of Municipalities after Amalgamation

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  • Katsuyoshi Nakazawa

    ()
    (University of Toyo)

Abstract

This paper focuses on the increase in slack costs due to municipality amalgamation, which is pushed forward in several countries to achieve economies of scale. Employing the stochastic frontier cost function to estimate the inefficiency of local public expenditure due to slack, this study investigated 479 Japanese municipalities that had amalgamated from 2000 to 2005. This work used the technical inefficiency variable “Number of municipalities that participated in an amalgamation” and a dummy variable for “The newly-established-municipality form of amalgamation.” Results show that these variables have an impact on the cost inefficiency of local public expenditure. Average efficiency scores in the two estimations carried out were 1.145 and 1.100. The estimation results showed that municipality amalgamation produces integration costs (slack) in an administrative organization. The degree of slack depends on the form of amalgamation.

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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201314.

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Length: 12 pages
Date of creation: 2013
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201314

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Keywords: Municipality amalgamation; Cost inefficiency; Slack cost; Stacastic frontier analysis; Japan;

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  1. Deller, Steven C & Rudnicki, Edward, 1992. " Managerial Efficiency in Local Government: Implications on Jurisdictional Consolidation," Public Choice, Springer, vol. 74(2), pages 221-31, September.
  2. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  3. Davis, Michael L & Hayes, Kathy, 1993. "The Demand for Good Government," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 148-52, February.
  4. Heikki A. Loikkanen & Ilkka Susiluoto, 2005. "Cost Efficiency of Finnish Municipalities in Basic Service Provision 1994-2002," ERSA conference papers ersa05p37, European Regional Science Association.
  5. Duncombe, William & Miner, Jerry & Ruggiero, John, 1997. " Empirical Evaluation of Bureaucratic Models of Inefficiency," Public Choice, Springer, vol. 93(1-2), pages 1-18, October.
  6. Kalseth, Jorid & Rattso, Jorn, 1995. "Spending and overspending in local government administration: A minimum requirement approach applied to Norway," European Journal of Political Economy, Elsevier, vol. 11(2), pages 239-251, June.
  7. Couch, Jim F & Shughart, William F, II & Williams, Al L, 1993. " Private School Enrollment and Public School Performance," Public Choice, Springer, vol. 76(4), pages 301-12, August.
  8. Byung-Goo Kang & Kenneth V. Greene, 2002. "The Effects of Monitoring and Competition on Public Education Outputs: A Stochastic Frontier Approach," Public Finance Review, , vol. 30(1), pages 3-26, January.
  9. Grossman, Philip J. & Mavros, Panayiotis & Wassmer, Robert W., 1999. "Public Sector Technical Inefficiency in Large U.S. Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 278-299, September.
  10. Brueckner, Jan K., 1981. "Congested public goods: The case of fire protection," Journal of Public Economics, Elsevier, vol. 15(1), pages 45-58, February.
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