Inefficient Public Sector Research Articles

Capital accumulation, unemployment, and self-fulfilling failure of economic reform

I consider fiscal reform and the consequences of expectations about reform cancellation. The reform implies reduced taxes and the laying off of employees in an inefficient public sector. If the resulting unemployment level declines sufficiently fast, the reform is completed. On the other hand, if high unemployment levels prevail for too long, the reform is cancelled. Cancellation affects the return on capital negatively. Hence, expectations about cancellation will depress capital accumulation and increase the level of unemployment. As a result, multiple rational expectation equilibria may arise where expectations about cancellation prove self-fulfilling. The modelling framework is Leontief technology in combination with Ramsey optimization that exhibits simple and attractive algebra.

Leviathan vs. Lilliputian: A Data Envelopment Analysis of Government Efficiency

In this paper we present a new approach to measuring government efficiency, based on the theory that communities that allocate resources efficiently in the local public sector maximize property values. We use Data Envelopment Analysis (DEA) to identify the counties in Minnesota that are characterized by property‐value maximization and hence an efficient public sector. The results indicate that the dominant source of public sector inefficiency is an inappropriate scale of operations. It appears that some county jurisdictions are too large to service the population efficiently. The size and concentration of government power are also responsible in part for observed inefficiencies.

Public Sector Technical Inefficiency in Large U.S. Cities

Technical inefficiency is the extent to which production is below the maximum possible given the mix of chosen inputs. Controlling for the determinants of local property value that a local government cannot change, a city produces local property value through the expenditure and revenue choices that it makes. If a city is generating the highest attainable market value of aggregate property within its boundaries given the local fiscal choices that it has made, then it is producing local government in a technically efficient manner. In this paper, using the concept of the stochastic frontier production function, we measure technical inefficiency in the local public sector based upon a comparison of local property values. The specification introduced allows the random component associated with the presence of technical inefficiency to depend on factors that have been suggested as limiting or enhancing technical inefficiency. Using a sample of 49 U.S. central cities, we find that large city governments in the United States are operating at different degrees of technical inefficiency and the degree of technical inefficiency varies inversely with measured levels of competitive pressures.

Outsourcing, Employment and Industrial Relations in the Public Sector

AbstractOutsourcing is very much part of the neo-liberal agenda for the public sector. The rationale for transferring the provision of goods and services, traditionally the responsibility of governments to private enterprise lies in the perception of public sector inefficiency and the philosophy that reducing the role of government, is essential for the optimal performance of the economy. While the impact of outsourcing is not always easy to isolate given its coexistence with a variety of complementary neo-liberal strategies such as legislative attacks on trade unions, there is strong evidence to suggest that it has contributed significantly to the reduction of employment, wages and working conditions. This has occurred both as functions are transferred to the less regulated private sector and as those left in government employment are subjected to the impact of ongoing financial stringency in their struggle to compete with the private sector and hold on to their jobs.

Public Sector Inefficiency in Large U.S. Cities

Much of the economic analysis of local governments assumes that local policymakers operate in a competitive environment where cities produce a level of local public sector output that can be considered efficient. Efficiency can be quantifies as the highest value of local property tax base possible given the endogenous and exogenous inputs available to a city government. If a city is not producing the highest attainable property value, ceteris paribus, then it could be considered inefficient. In this paper we attempt to measure the relative efficiency of large city governments in the U.S. through the technique of production frontier analysis. In a second stage of our empirical analysis we regress the derived measure of relative inefficiency against variables that have been proposed as causes of public production inefficiency. Our results show that large city governments are operating at different degrees of efficiency and that many of the causal hypotheses advanced in this regard are empirically valid.

The power of accounting: reflecting on water privatization?

The water industry was one of a number of publicly owned enterprises and assets which were privatized during the 1980s in the UK. The Government justified its privatization programme on a number of grounds. In particular, it claimed that privatization would improve industrial performance by subjecting the nationalized industries to the discipline of the market, and so would yield benefits, via greater efficiency, to the industry, customers and the nation. Examines first the extent to which an accounting model and the financial numbers in the annual reports and accounts can be used to substantiate Government claims, and describe and explain the outcomes. Assesses whether accounting can assume a constructive and emancipatory role, by challenging existing problem diagnosis ‐ public sector inefficiency ‐ and posing alternative questions and solutions. Shows that the financial evidence does not substantiate the Government’s claims. Finds that greater efficiency, meaning lower costs relative to output, did not occur. Significant increases in efficiency had occurred prior to privatization, leaving little room to improve efficiency without jeopardizing levels of service and future service provision. The distribution of the surplus, which is publicly seen as a conflict between consumers and shareholders, is in fact much wider than this. Argues that the surplus has been so distributed that it has not only substantially benefited the shareholders at the expense of other stakeholders, but also has created the conditions whereby the other stakeholders will be disadvantaged in the future. Concludes that the real beneficiaries were largely invisible in the Government’s case for privatization.

The need to mobilize government learning in the Republic of Slovenia

Highlights the unique difficulties of Slovenia’s current public administrative system which has to find ways to change from the previous Yugoslav system to a more modern administrative system. First describes Slovenia’s economic and political make‐up and proceeds with a description and discussion of Slovenia’s current public sector inefficiencies and ineffectiveness. Concludes with a call for continuous reforms of Slovenia’s central government administration and suggests that strengthening of the administration’s internal management development capability should be one of the key prerequisites for embarking on the reform process.

Efficiency and effectiveness control based on economic analysis: The example of the Austrian court of audit

The purpose of this article is fivefold: First, we demonstrate the potential and importance of central auditing in Austria in section 2.1 before identifying the causes of public-sector inefficiency in section 2.2. Then we outline the organizational structure in section 3 and describe the need for return in section 4. We develop proposals for improving the central auditing system in section 5. In so doing, we endeavor not to succumb to the pervasive influence of the well-established, yet objectionable Austrian status quo, realizing that our proposals may be rejected by politicians and bureaucrats as being unrealistic.

Managing the health care market in developing countries: prospects and problems.

There is increasing interest in the prospects for managed market reforms in developing countries, stimulated by current reforms and policy debates in developed countries, and by perceptions of widespread public sector inefficiency in many countries. This review examines the prospects for such reforms in a developing country context, primarily by drawing on the arguments and evidence emerging from developed countries, with a specific focus on the provision of hospital services. The paper begins with a discussion of the current policy context of these reforms, and their main features. It argues that while current and proposed reforms vary in detail, most have in common the introduction of competition in the provision of health care, with the retention of a public monopoly of financing, and that this structure emerges from the dual goals of addressing current public sector inefficiencies while retaining the known equity and efficiency advantages of public health systems. The paper then explores the theoretical arguments and empirical evidence for and against these reforms, and examines their relevance for developing countries. Managed markets are argued to enhance both efficiency and equity. These arguments are analysed in terms of three distinct claims made by their proponents: that managed markets will promote increased provider competition, and hence, provider efficiency; that contractual relationships are more efficient than direct management; and that the benefits of managed markets will outweigh their costs. The analysis suggests that on all three issues, the theoretical arguments and empirical evidence remain ambiguous, and that this ambiguity is attributable in part to poor understanding of the behaviour of health sector agents within the market, and to the limited experience with these reforms. In the context of developing countries, the paper argues that most of the conditions required for successful implementation of these reforms are absent in all but a few, richer developing countries, and that the costs of these reforms, particularly in equity terms, are likely to pose substantial problems. Extensive managed market reforms are therefore unlikely to succeed, although limited introduction of particular elements of these reforms may be more successful. Developed country experience is useful in defining the conditions under which such limited reforms may succeed. There is an urgent need to evaluate the existing experience of different forms of contracting in developing countries, as well as to interpret emerging evidence from developed country reforms in the light of conditions in developing countries.

The ?mess? of the public industrial production in Austria: A typical case of public sector inefficiency?

The economics of property rights, the X-efficiency approach, the economic theory of bureaucracy, the public choice theory and the findings about union-controlled firms have been used to explain inefficiency in the public sector in general. These approaches, however, have been rarely applied specifically to public industrial production in competitive markets with private goods characteristics. In Austria a sixth of the industrial production takes place in public enterprises. Until lately there were neither thorough audits nor strict efficiency controls by the government or administration. For a long time the obvious inefficiencies were tolerated by the taxpayers, the government and even by the opposition. Moreover in the Austro-keynesian era the public industrial firms were implicitly used for reaching the government's stabilization policy goals immediately. This brought about big losses and created a heavy burden on the federal budget. Nonetheless the microeconomic consequences of this kind of Austrian public industrial policy have not been analysed satisfyingly.

Some thoughts on the Brady plan: Putting a fourth leg on the donkey?

The failure of the Baker Plan to produce any significant improvement in the circumstances of the highly indebted middle-income countries was not surprising. The plan is most readily described as a three-legged donkey. The first leg was to be the adoption by debtor countries of policies aimed at achieving “adjustment with growth.” Macroeconomic adjustment (first and foremost the elimination of unsustainable fiscal deficits) was to be complemented with internal and external liberalization policies. The aim of these structural reforms was to improve the operation of markets, shift resources into the tradables sectors (especially production for exports) and eliminate waste and inefficiency in the large public enterprise sector. Since the plan was announced in a speech, it is understandable that it contained only a vague and broad description of policies and few operational specifics. No quantitative assessment (and barely any qualitative characterization) of how the policies were to promote growth and ease structural adjustment was ever provided. Key issues like the definition, monitoring and enforcement of conditionality of financial support were not adequately addressed. There was some doubt whether the policy conditionality of the plan was laxer in some ways or no different from that of the International Monetary Fund (IMF) and of the World Bank for structural adjustment lending. Nevertheless, a number of countries made efforts to bring their budgetary deficits under control, eliminate some glaring inefficiencies in the public sector and the parastatals, and pursue export-oriented trade strategies. With the notable exceptions of Mexico and Chile, most of them did not persist in these efforts long enough to make a difference in their situations. The second leg of the Baker Plan, continued financial support by the IMF, the World Bank and other multilateral development banks (presumably contingent on the adoption of suitable policy reforms), as well as national export agencies, was present, but turned out to be a short leg at best. The third leg, increased net lending by commercial banks to debtor nations, never materialized for the simple reason that the banks were given no incentive in the plan to provide new loans, With the exceptions of Argentina and Mexico, the highly indebted countries have failed to receive any “concerted” bank loans since 1986.’ The Baker Plan in action thus turned out to be a two-legged donkey. It is hardly surprising that it did not go very far. It is surprising that people in positions of authority believed that the private banks, burdened by a large portfolio of nonperforming sovereign debt, would be willing to pledge additional funds. It is also something of a mystery why the very same banks that brought us the lending spree of the 1970s should be invited and encouraged to return for an encore. Indeed, it may not even be desirable to have a large part of the commercial banking system with no longterm interest in international finance participate in medium-term lending to countries of which they have little knowledge, and in which they have even less interest. Even if the commercial banks had been willing to supply more funds, the debtor countries might have been well advised to “just say no.” Borrowing short to invest long is not a prudent strategy. Short-term commercial bank loans at variable rates of interest impose a significant share of the risk due to macroeconomic policy changes and performance in the creditor nations on the debtors. Long-term fixed rate loans or equity participation are much more suitable instruments for financing long-term investments. Additional variable rate bank debt may only have led to repeated adjustments of structural adjustment programs to meet exogenously fluctuating repayment streams. Without significant new inflows, Mexico’s interest obliga-

Private Children's Homes: an analysis of fee variations and a comparison with public sector costs

The emphasis on economy, effectiveness and efficiency in the public sector has been one source of encouragement to local authorities to contract-out some of their services. However, the assumption common in some circles of an inefficient public sector and efficient non-public sectors is rarely tested. This paper addresses this assumption. It focuses on private children’s homes and the fees they charge, and compares them with the costs incurred in the public sector. Fees and costs are compared after standardisation for differences in the characteristics of clients, homes and areas. The charging structure adopted by most private homes is relatively simple, and their fees are lower than local authority costs even after standardisation. There are no discernible quality differences between the sectors. In present circumstances, the private sector appears to offer a cost-effective service to local authorities. However, doubts are expressed about the scope for a very much larger role for the private sector.

Alternative Approaches to Correcting Public Sector Inefficiency

Abstract. Numerous proposals have been made for improving the provision of collective services. The major ones are explored including reduction of public sector size, introduction of greater competition into the provision of collective services, greater use of incentives to foster sector private sector production, direct substitution of private for public production, and redefinition of the outputs expected from collectively provided services. The advantages and disadvantages of each are considered in light of the multiple sources of public sector inefficiency. No one proposal to eliminate inefficiency in the provision of collective services is likely to succeed. What is needed is careful consideration of the alternatives for each type of public sector service.