PSP – Public Sector Performance
In this project, financed by The Rockwool Foundation, the aim is to find new ways to measure the performance of central parts of the public sector.
30% of the Danish labor force works in the public sector. It is, therefore, very important to know how efficient this sector is, how fast its efficiency is improving, what drives best practices, and the extent to which the services produced meet demand. In this project, we focus on municipalities. They are responsible for 50% of public spending and employ 60% of public employees.
In the absence of markets and prices, no good measures of municipality efficiency are readily available. The challenge is, therefore, that we have unanswered but crucial questions about the efficiency of a very large part of the Danish economy but no good available measures of efficiency.
Our answer to this challenge is to develop two alternative and complementary measurement approaches.
The first measurement framework is based on a non-parametric mathematical programming approach, DEA. We establish a comprehensive input-output panel data set with information about municipal services and expenditures. Indicators will be corrected to reflect real differences in service rather than just differences in the demographic and socioeconomic composition of the citizenry. We then apply a benefit-of-the-doubt DEA approach with weight restrictions to assess municipal service and efficiency levels.
The second framework is based on an econometric hedonic pricing approach. The idea is that citizens as taxpayers and consumers of local government services respond to differences in efficiency between the municipalities. This implies that municipal performance is capitalized into property values. Deviations from “objective” property values can therefore be used as performance indicators. The estimation will be done by application of hedonic regression in which the value of properties is broken down into its objective constituent units.
The project is led by Professor Peter Bogetoft, Department of Economics at Copenhagen Business School (CBS).