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Working paper

State Efficiency in Public Sector Production: Combining DEA and Mathematical Simulation

A common situation that state efficiency research has to deal with is total lack of information about actual efficiency parameters: the only data available for analysis is the amount of inputs (in most cases, monetary, corresponding to budget expenditure) and the amount of outputs (in most cases, quantifiable public goods). A non-parametric method such as DEA is well-suited for estimating DMU efficiency in such cases, although different input and output specifications might yield contradictory estimates. In this paper we provide an example of how a dynamic model of the state redistribution based on common assumptions about production technology allows to benchmark efficiency estimates. The model becomes a systematic generator of inputs and outputs to be estimated via DEA; model (pre-set) parameters are to be compared to DEA efficiency scores. We also propose a way to combine both “static” and “dynamic” approaches to measuring public sector efficiency by using aggregated DEA inputs.