Measuring allocative efficiency in Cultural Economics: the case of “Fundación Princesa de Asturias” (The Princess of Asturias Foundation)

Abstract

The literature on Cultural Economics provides us with some examples for the measurement of technical efficiency. However, there are few case studies dedicated to the analysis of allocative efficiency. The aim of this paper is to fill this gap by incorporating a methodology that analyses both technical and allocative efficiency. We use the Shephard’s distance function, particularly suitable when affronted with non-profit-making firms or institutions that are not interested in cost minimization. As an empirical application, we analyse the efficiency of Fundacion Princesa de Asturias (PAF), a Spanish non-governmental organization devoted to promoting the cultural, scientific and humanistic values of universal heritage, the period of study being 1988–2012. Our findings suggest that PAF could have used 7% less inputs to achieve the same level of output. On the other hand, we have found allocative inefficiency. Concretely, the input for other expenditures appears to have been over-utilized in relation to both the inputs for labour and current assets, with labour in turn being over-utilized in relation to current assets. Moreover, our results indicate that both technical and allocative efficiency have clearly improved during the period analysed. In summary, our empirical application shows how distance function methodology can be successfully implemented to measure allocative efficiency in cultural firms and institutions.