Factor Substitution, Price Elasticity of Factor Demand and Returns to Scale in Police Production: Evidence from Michigan

Abstract

Budget problems facing many state and local governments, together with declining public sector subsidies, have forced these governments to search for more efficient ways of providing services such as public safety and public health. The provision of public safety, like many other service industries, is labor intensive with personnel cost usually accounting for between 50 and 70 percent of total cost. The principal labor input is police officers. The relatively large increases in police wages (partly aided by arbitration) thus puts increased pressures on city budgets. Apparently, efforts at reducing cost of providing public safety have included attempts at factor substitution. For example, the last decade has seen an increasing use of civilian employees, mostly in administration, so that the ratio of police officers to civilians has declined. In addition, there has been a decline in the use of sidewalk beats by some police departments and an increase in the use of patrol cars for surveillance. Evidently there is a possible output as well as a substitution effect in the demand for these factors.