Information Technology and Administrative Efficiency in U.S. State Governments - A Stochastic Frontier Approach

Abstract

This paper aims at exploring value creation from information technologies (IT) in governments. While the majority of studies in the information systems (IS) discipline have focused on discovering IT business value in for-profit organizations, the performance effects of IT in the public sector have not been extensively studied in either the IS or public administration literature. We examine whether IT improves administrative efficiency in U.S. state governments. Utilizing the IT budget data in state governments, the census data on state government expenditures, and a variety of information on public services states provide, we measure technical efficiency with a stochastic frontier analysis with a translog cost function and estimate the effect of IT spending on efficiency. Our analyses provide evidence for a significantly positive relationship between IT spending and cost efficiency and indicate that on average, all else being equal, a $1 increase in per capita IT budget is associated with $1.13 efficiency gains. This study contributes to the IS literature by expanding the scope of IT value research to the public sector organizations and provides meaningful implications for elected officials and public sector managers.