Does the Method of Amalgamation Affect Cost Inefficiency of the New Municipalities?

Katsuyoshi Nakazawa

doi:10.4236/ojapps.2014.44015

Abstract

Municipal amalgamation has been done in many countries in recent years as the result of a push to enlarge the size and coverage of local government units, which in turn is driven mainly by the prospect of economies of scale. However, while municipality amalgamation or boundary reform raises population size, it introduces organizational changes in the local government that might increase administrative inefficiency. The choice for the method of integration of administrative functions before amalgamation might affect to public expenditure after amalgamation. This study uses Japanese municipal-level data and argues for a relation between the choice for the method of integration of administrative functions and cost inefficiency after amalgamation. The results show that the fully distributed facility method is more likely to be adopted in a larger administrative jurisdiction and in one with large differences in finances or political structures between amalgamated sub-regions. Moreover, the results of stochastic frontier regression show that new municipality adopting fully distributed facility method can possibly increase inefficiency by expanding organizational slack because the new administration system will be insufficient integration of administrative functions.

Highlights

Many countries have implemented municipality amalgamation or boundary reform to create larger local governments in order to achieve economies of scale and economies of scope
I estimate the choice for the method of the distribution of public facilities and services in the new municipality by multinomial logistic regression and examine the effect of these methods on the cost inefficiency of municipalities after amalgamation using stochastic frontier regression
In short, the method by which provision of public facilities is organized in post-amalgamation municipalities is affected by demographical, geographical, socioeconomic, and political differences among municipalities before amalgamation

Summary

Introduction

Many countries have implemented municipality amalgamation or boundary reform to create larger local governments in order to achieve economies of scale and economies of scope. The choice for the method of integration of administrative functions before amalgamation might affect the cost inefficiency of municipalities after amalgamation. I consider the factors that might affect the choice for the method of the distribution of public facilities and services in the new municipality using the multinomial logistic regression. I apply the stochastic frontier cost function to evaluate the cost inefficiency of Japanese municipalities after amalgamation In this way, this paper examines how the choice for service distribution method affects the cost inefficiency of municipal expenditures after amalgamation.

Municipality Amalgamation in Japan

Multinomial Logistic Regression

Stochastic Frontier Cost Function

C-Output Index and Inefficiency Factors

Conclusions