ry

S

Local government

t bediesifcudyofh poth

Furthermore, mixed companies may increase the inter-annual variation of the efciency, especially when

NPMrds ofis u

To bem(econolic serv

efciency of the public administration and to reduce public sectorspending, politicians began to reform public services in differentways, based on NPM theory.

; Brueckner (1979)SA; Vanden et al.nd Kersten (1996)gton et al. (2001)the Netherlands;Barrow (2000) for

functional decen-tralisation and externalisation with respect to Spanish efciency oflocal governments is scarce. Most studies have focused merely onthe dichotomy between private and public management, and donot consider the different ways of providing public servicesthrough functional decentralisation. In addition, previous paperssuffer other limitations as regards the samples selected and thenumber of services analysed. In general, their analyses are carriedout in a specic year, so the real effect is difcult to observe, andthey are only focused on one region of Spain. Furthermore, only one

* Corresponding author. Universidad de Salamanca, Facultad de Economa yEmpresa, Campus Miguel de Unamuno Edicio FES, 37007 Salamanca, Spain.Tel.: 34 923294400x3132; fax. 34 923294715.

Contents lists available at

Utilities

journal homepage: www.e

Utilities Policy 26 (2013) 23e35E-mail address: u77171@usal.es (B. Cuadrado-Ballesteros).To achieve these important objectives, public management reformmay make use of diverse processes, including privatisation, de-centralisation and externalisation (Kettl, 2000).

Some years ago, the study of efciency acquired increasingimportance, when the European Economic and Monetary Unionestablished restrictions with a view to attaining budgetary stability,which oblige governments to assign their resources efciently tosatisfy their citizens (Benito et al., 2010a). In order to improve the

level, includingWorthington (2000) for Australiafor New Jersey; Grossman et al. (1999) for the U(1993), De Borger et al. (1994) and De Borger afor Belgium; Tarou (2000) for France; Worthinfor Wales; Dijkgraaf and Gradus (2003) forDijkgraaf et al. (2003) for Denmark; Reeves andIreland; and Ohlsson (2003) for Sweden.

However, literature focused on the effect ofations of government more efcient and increasing the chances thatthe policies which are chosen and implemented will be effective.

demand.A large number of studies have analysed efciency at the local1. Introduction

The three main pillars on whichefciency and exibility. In the wo(2000), public management reformmeans to an end, not an end in itself.ends. These include making savingsditure, improving the quality of pub0957-1787/$ e see front matter 2013 Elsevier Ltd.http://dx.doi.org/10.1016/j.jup.2013.04.005they are promoted by right-wing governments too. 2013 Elsevier Ltd. All rights reserved.

rests are: effectiveness,Pollitt and Bouckaert

sually thought of as aore precise, tomultiplemies) in public expen-ices, making the oper-

In the case of Spain, reforms under the NPM theory arrived late(Hood, 1996) and this particularly affects local governments, whichprovide most public services. As the empirical evidence shows,local administrations are resorting to private contracting (Pina andTorres, 1998; Garca, 1999; Rami-Matas and Garca-Codina, 2006)and decentralisation of the administration (Cuadrado, 2008; Prado-Lorenzo et al., 2009; Benito and Bastida, 2003a, 2003b, 2005, 2008;Montesinos et al., 2010) in order to supply the services that usersFunctional decentralisationExternalisationEfciency externalisation e impact negatively on efciency of local governments. Nevertheless, public businessentities created by right-wing parties may improve the annual efciency of the local governments.Effect of modes of public services delivegovernments: A two-stage approach

Beatriz Cuadrado-Ballesteros*, Isabel-Mara Garca-University of Salamanca, Spain

a r t i c l e i n f o

Article history:Received 29 January 2013Received in revised form24 April 2013Accepted 29 April 2013

Keywords:Public services

a b s t r a c t

A clear relationship has noof local Governments. Stuyear, so the real effect is dThe main aim of this st

processes on the efciencySpanish municipalities witThe results show that bAll rights reserved.on the efciency of local

nchez, Jos-Manuel Prado-Lorenzo

en found between the modes of public services delivery and the efciencyhave been carried out for only one or two services and/or in a concreteult to generalize.is to analyse the effect of functional decentralisation and externalisationlocal public services delivery, in order to clarify the situation. For this, 129opulations over 10,000 between 1999 and 2007 have been considered.pure modes of public services delivery e functional decentralisation and

SciVerse ScienceDirect

Policy

lsevier .com/locate/ jup

or two services are included in most such studies, and so the evi-dence obtained cannot be generalised for all public services.

Accordingly, the main aim of this study is to analyse the effect offunctional decentralisation and externalisation processes on theefciency of Spanish local governments. Concretely, we expect toadd empirical evidence about this topic by (i) specifying the impactof these processes; (ii) conducting a complete analysis of functionaldecentralisation, taking into account the different decentralisedentities e public companies, foundations, autonomous organisa-tions and public business entities e instead of only one mode ofdelivery; and (iii) choosing a time period that permits the use ofpanel datamethods, which providemore robust results and allow usto control the unobservable heterogeneity and correct the endoge-

culture, the promotion of womens rights, housing, health care andenvironmental protection.

The Local Government Regulatory Law allows municipal ser-vices to be provided through the following ways:

Direct management: the administration, management andcontrol of public services are handled by the public adminis-tration itself.

Functional decentralisation: this is the process throughwhich local governments create smaller and more exibleentities in which a business culture predominates (Aberbachand Rockman, 1999). These agencies are closer to citizens, sothey have better knowledge of their preferences and needs,

rdin

T

-----

B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e3524neity problems between dependent and independent variables.With this goal in mind, we considered 129 Spanish municipal-

ities with populations of over 10,000 between 1999 and 2007, in-clusive. In order to provide more precise ndings, the process offunctional decentralisation is disaggregated according to the legalform of the organisation: public companies, autonomous organi-sations, public business entities and foundations.

The results obtained show that both pure forms of public ser-vices management have a negative impact on efciency. Never-theless, public business entities created by right-wing parties mayimprove the annual efciency of the local governments, as well as,companies with an ownership structure formed by a public-privatesector mix increases inter-annual efciency, especially when theyare promoted by right-wing governments too.

2. Modes of public services delivery and efciency of localgovernment: research hypotheses

2.1. Modes of public services delivery at local level in Spain

According to Article 11.1 of the 1985 Local Government Regu-latory Law (Ley Reguladora de Bases de Rgimen Locale LRBRL), amunicipality is the basic local entity of the territorial organisationof the state, with legal personality and full capacity to full itspurpose.

With regard to organisational structure, the municipal admin-istration is composed of two types of bodies: the political, formedby the mayor and the town councillors, with either decision-making functions or service provision management duties; andthe executive, comprised of the set of services and units that carryout the decisions taken by the former.

The responsibilities attributed to local government are set out inarticles 25 and 26 of the Local Government Regulatory Law, and arestrongly linked to the population of the municipality, as shown inTable 1.

In addition, article 28 of the same law enables municipalities tooffer complementary services related to aspects such as education,

Table 1Local public services in Spain.

Essential services Minimum or compulsory services acco

In all towns Towns with a population over 5000

- Street lighting- Cemetery- Waste collection- Street cleaning- Domestic supply of drinking water- Sewer system and drains- Road access- Paving of public roads- Food and drink control

- Public park- Public library- Market- Waste treatmentSource: The authors, based on the Local Government Regulatory Law.thus, local government may improve public services delivery.Some reasons to carry out this process are improving efciencyin attaining objectives (Boyne, 1996), improving coordinationand control (Tullock, 1965), reducing bureaucratic processes(Niskanen, 1971) and recognising needs more easily, thusproviding services faster (Downs, 1967) due to the fact thatdecentralised units are closer to citizens and, therefore, moreaware of their preferences (Hayek, 1945). The fact that man-agement units are smaller and more exible makes themmoredynamic and leads users to express greater satisfaction. In thecase of Spain, local governments are able to create thefollowing decentralised entities:B Autonomous organisations: public bodies with their ownlegal personality that have an autonomous managementsystem, but which continue to form part of the GeneralAdministration. They are subject to Administrative Law andtheir regulations are governed by Act 6/1997 of 20 April1997, on the Operation and Organization of the General StateAdministration. This type of structure is often used for taxcollection purposes, in view of the budgetary control ob-tained and the fact that procurement rules are exible in thiscase. Autonomous organisations are used for administrativeand commercial tasks.

B Public business entities: these are public bodies that areengaged in providing services or goods with nancialcompensation and are subject to private law, except inrelation to the exercise of public powers and certain aspectsof performance, in this particular case public law is applied(Barrera, 2008). These entities are used for some culturalservices and urban development and housing services,mainly in municipalities in Catalonia and the BasqueCountry.

B Public companies: entities with their own legal personality,distinct from that of their members, and which operate inaccordance with Commercial Law, using their own capital.The provision of public services through public companies isusually nanced through public property taxes and prices

g to population

owns with a population over 20,000 Towns with a population over 50,000

Civil defenceSocial servicesFire prevention and extinguishingPublic sports facilitiesSlaughterhouse

- Public transport- Environmental protection

2001), Bosch et al. (2000), Dez-Ticio and Mancebn (2002, 2003),Prieto and Zoo (2001), Gimnez and Prior (2003, 2007), Balaguer-Coll (2004), Garca-Snchez (2006, 2007), Balaguer-Coll et al. (2007,2010), Benito et al. (2010a) and Bel et al. (2009), although most ofthese studies do not focus on how functional decentralisation andexternalisation processes affect efciency in the provision of publicservices.

The main conclusion in the case of Spain is that the use of the

/ Utilities Policy 26 (2013) 23e35 25charged to the users of the services (Rubin, 1988; Molinariand Tyer, 2003). Public companies are usually preferred forurban management, water supply and sanitation and urbanwaste management and more than 80% of these publiccompanies have wholly public capital (Morn, 2009).

B Public foundations: according to the Spanish Association ofFoundations, these are non-prot organisations whosepatrimony is perpetually devoted to the general interest, andwhose beneciaries are groups of people. Among theirgeneral interest goals are the defence of human rights(including assistance to victims of terrorism and other actsof violence), social care and social inclusion, educational,cultural and social issues, scientic, sports-related, health-related and work-related activities, environmental protec-tion and technological development.

Externalization (outsourcing or contracting-out): local gov-ernments may allow service management to contract with theprivate sector. The local administration retains ownership andto a large degree maintains decision and control capacity, butprivate entities provide and manage the services in question.This is another important reform of NPM theory, for which thisprocess is a way of increasing accountability by turning to in-dividuals from the market; the idea is that this may maximizeeconomic efciency, reducing government costs and increasingthe quality of public services as a result of the transfer of certaingovernment functions to the private sector where they are leftin the hands of specialist suppliers (Cannadi and Dollery, 2005;Gonzlez et al., 2011). In this way local governments may focuson those strategic operations that are more important andexternalise the less relevant ones (Butler, 1985; Donahue, 1989;Brown and Potoski, 2003; Pessoa, 2009; Gonzlez et al., 2011).The main formulas for externalising public services areadministrative concession, interested management, leasing andcooperatives, consortia and agreement (Pina and Torres, 1997).

Regarding Cuadrado-Ballesteros et al. (2013a), Spanish munici-palities often externalisewater supply and sanitation, the collectionand treatment of urban waste and the provision of urban publictransport. In general, for water services, local governments rely onthe company Aqualia, which is part of the FCC Group; in thecase of urban waste, FCC shares the provision of this service withthe ACS Group, although in general, municipalities that use FCCfor water services, use the same company for their urban wastedisposal services; for urban public transport, local governmentsusually contract small local companies.

Mixed companies: the public administration and the privatesector jointly provide capital to create these companies, so theseare neither entirely public-ownership nor private-ownership.Themanagement of public services is shared by the two sectors.

In the case of Spain, mixed companies are usually used for waterservices and some cultural and housing services. In the case ofwater services, the most important company is the Agbar Group.For cultural and housing services, local governments use speciccompanies, an option that is predominant in Catalonia and theBasque Country (Cuadrado-Ballesteros et al., 2013a).

Due to the existence of different modes of public services de-livery in Spain, it is important to consider these different entities, toavoid partial analysis and biased results.

2.2. The efciency of local governments

In general, in research into efciency at the local level in Spain,

B. Cuadrado-Ballesteros et al.certain authors can be highlighted, such as Pina and Torres (1992,private sector in the provision of public services does not guaranteegreater efciency, and so the balance between public and privatemanagement is not optimal, as shown by Bel and Warner (2008)and Bel et al. (2009) in the case of water and waste services.Other papers support this idea1 in the specic case of water services(Garca-Snchez, 2006; Garca-Rubio et al., 2009; Ordoez de Haroand Bru-Martnez, 2003) and refuse collection services (Bosch et al.,2000).

However, the evidence is not overwhelming in other countries.In general, in regard to refuse collection services, authors nd thatprivate provision generates savings in costs, as in the study byReeves and Barrow (2000) in Ireland, McDavid (2008) in Canada,2

Dijkgraaf and Gradus (2003) in the Netherlands,3 Dijkgraaf et al.(2003) in Denmark4 and Ohlsson (2003) in Sweden. For waterservices, some authors do not nd a superiority of private or publicprovision in the USA (Bhattacharyya et al., 1994,1995;Wallsten andKosec, 2005), England and Wales (Saal and Parker, 2001; Bottassoand Conti, 2003; Saal et al., 2007), Brazil (Faria et al., 2005; SeroaDa Motta and Moreira, 2006; Sabbioni, 2008) and some countriesin Africa (Kirkpatrick et al., 2006). But, at the same time, otherauthors nd that private provision is preferable in Colombia(Arevalo and Schippener, 2002; Beato and Daz, 2003), Cote dIvoire(Collignon, 2002) and other countries in Africa (Estache andKouassi, 2002), as well as Honduras (Daz, 2003) and Argentina(Estache and Trujillo, 2003; Salatiel, 2003).

Water and waste disposal services have been the ones moststudied, although some studies have addressed local police (DezTicio and Mancebn, 2002; Drake and Simper, 2002, 2003;Garca-Snchez, 2007), public transport (Kerstens, 1999; Pina andTorres, 2001; Garca-Snchez, 2009), re services (Cuenca, 1994;Kristensen, 1983; Ahlbrandt, 1973), and so on.

However, most studies are focused merely on the dichotomybetween private and public management, and do not consider thedifferent ways of providing public services through functional de-centralisation. In addition, previous papers suffer other limitationsas regards the samples selected and the number of services ana-lysed. In general, their analyses are carried out in a specic year, andso the real effect is difcult to observe. Furthermore, only one ortwo services are included in most of the studies, and so the evi-dence is not generalised for all public services.

From the theoretical point of view, functional decentralisation isdened as the creation of management units that are smaller andmore exible with a business orientation (Aberbach and Rockman,1999), which makes them more dynamic and enhances the ef-ciency of public sector (Boyne, 1996), reducing bureaucratic pro-cesses (Niskanen, 1971). The fact that management units aresmaller and more exible makes them more dynamic and leads

1 Although this is the evidence most found, it must be pointed out that Picazzo-Tadeo et al. (2007, 2009) nd that private management is better.

2 This evidence is stronger in small municipalities.3 However, the population does not experience this saving directly due to the

scal system in the Netherlands.4 Private production is used more in small municipalities. In addition, these au-

thors nd evidence in the opposite sense, that is, public production is used more by

municipalities with high unemployment rates and by those that receive high levelsof transfers.

users to express greater satisfaction. In addition, these agencies are

nation of the inputs. The maximum is found by selecting the

3.1. Input and output variables for DEA index

According to Balaguer-Coll et al. (2010), the selection of inputs isbased on budgetary variables that reect municipality costs that inturn reect the economic structure of Spanish local governmentexpenditures. In this sense, Spanish legislation denes three basiccategories: current, capital and nancial expenditures. Currentexpenditures are further divided into four categories, but this papertakes only three of them into account: personnel expenditure (X1);current goods and services expenditures (X2); and current transfers(X3). Capital expenditures are also broken down into real in-vestments (X4) and capital transfers (X5), which refer to paymentsfrom institutions to nance certain investments.

The selection of outputs, Table 2, is based on the services pro-vided by each municipality, and the classication of municipalservices made by Prado-Lorenzo and Garca-Snchez (2006) hasbeen adopted for it. In cases where similarities exist betweenSpanish municipal services and the areas of competence of otherEuropean local governments, the outputs were selected accordingto several parallels with previous studies.

The emergency services item includes police and re services.The police service pursues: (i) public safety through the preventionof crimes and offences of any nature, patrolling the geographicalarea of the town, and (ii) road safety, facilitating trafc ow. The re

B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e3526optimal weights associated with the inputs and outputs. Thehighest possible efciency reaches the value of 1, indicating a pointon the frontier and hence a technically efcient DMU.

In this paper, in line with Prado-Lorenzo and Garca-Snchez(2007), Garca-Snchez (2008) and Garca-Snchez et al. (2011a,2011b), the indices of technical efciency were calculated usingthe VRS5-DEA estimator with the application of bootstrapping, andcalculated overall for each of the four sectors. We used WilsonsSoftware Package for Frontier Efciency Analysis with R (FEAR) toestimate bootstrapped technical efciency (Wilson, 1995). Inaddition, based on our panel data, the analysis of the evolution ofefciency was carried out using the Malmquist Productivity Index(e.g. Garca-Snchez et al., 2011a, 2011b), originally developed byCaves et al. (1982a, 1982b). From the point of view of outputs, theseindices interpret the differences in productivity as the differentcapabilities, given the restrictions imposed by technology, forincrementing output without additional consumption of resources(decreasing inputs without reducing outputs).closer to citizens, so they have better knowledge of their prefer-ences and needs (Hayek, 1945), thus, local government mayimprove public services delivery, providing services faster (Downs,1967).

In addition, outsourcing is expected to improve efciency,because management is in the hands of specialist suppliers(Cannadi and Dollery, 2005; Gonzlez et al., 2011) that are accus-tomed to incorporating performance criteria in public servicesdelivery. This process may maximize economic efciency, reducinggovernment costs and increasing the quality of public services as aresult of the transfer of certain government functions to the privatesector where they are left in the hands of specialist suppliers(Cannadi and Dollery, 2005; Gonzlez et al., 2011).

Accordingly, we propose the following hypothesis that is thecore of the paper:

Functional decentralisation and externalisation have a posi-tive effect on local government efciency.

3. Measuring efciency

The literature reveals that a wide range of statistical techniqueshas been used by different researchers to estimate efciency.Among these techniques, Data Envelopment Analysis (DEA) is themost commonly accepted because this methodology is superior toestimations that use ordinary least squares, and is consistent withthe denition of the production function (Russell, 1985).

The use of DEA techniques when multiple outputs are producedoffers advantages such as: (i) allowing the overall analysis of eachunit; not requiring prior denition of a production function thatneeds the creation of a mythical unit with which to perform thecomparison (Shang and Sueyoshi, 1995), (ii) providing informationon the best practices for each inefcient unit, (iii) allowing the in-clusion of exogenous variables as uncontrollable inputs, and (iv) notrequiring the assumption of fullment of statistical hypothesessuch as normality and absence of heteroskedasticity.

DEA techniques measure the efciency of different units, calledDecision Making Units (DMUs). In our case, these units are localgovernments which provide the same municipal services. Eachlocal government uses a vector X of inputs and produces a vector Yof outputs. The efciency of a DMU is measured as the maximumratio of the linear combination of the outputs to the linear combi-5 VRS is the acronym of Variable Returns to Scale.service has as its objective to reduce the probability of resoccurring and help to limit losses in property and lives in res thatdo occur (Schaenman and Swart, 1974). The probability of the respreading will be represented using the variable density of popu-lation, in line with Duncombe and Yinger (1993).

Utility services comprise the paving of public roads, streetlighting and water supply and sewerage services. The rst twoservices represent the civil construction works necessary tomaintain road surfaces in good repair and adequate street lighting.Water supply refers to the continual distribution of water that hasbeen made drinkable and safe by means of various preliminarytreatments, adapted to the daily demand of the customers. Thepurpose of the sewerage service is to remove the sewage origi-nating from both rainfall and from the return of the drinking watersupply after it is used, which involves channelling the sewage from

Table 2Output variables.

Municipal services Outputs

Protection or emergency servicesPolice services (public and road safety) Surface area (Y1)

Number of vehicles encirculation (Y2)

Fire prevention and extinguishing Population density (Y2)Utility servicesPaving of public roads and accessPublic street lighting Surface area (Y1)Supply of drinking water and sewerageSupport services and transportationStreet cleaning, waste collection and

treatmentSurface area (Y1)

Public transport Population (Y3)Surface area (Y1)

Planning servicesUrban planning Surface area (Y1)Urban management Taxes on construction (Y4)Human and health servicesSocial services Unemployed population (Y5)Culture and sports Population (Y3)Environmental protection and

public parksSurface area (Y1)Number of economic activities (Y7)

Health services Number of economic activities (Y6)Source: The authors

the place where it is generated or where user consumption occursto water treatment plants. All of these services are represented bythe street infrastructure surface area, which identies the kilo-

total tax collection of local government.

Following Banker et al. (1984), the variable returns to scale (VRS)

B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e35 27Human and health services include social services, upkeep ofcemeteries, culture and sports, as well as environmental protectionand business regulations in matters of health and consumer pro-tection. In general, these services are meant to attain and guaranteebasic welfare for certain social groups with special needs or situa-tions, as well as the general population through control of airquality, etc.

3.2. Annual efciency

DEA is a multiple-input and multiple-output production tech-nology, where inputs x C Rd are used in the production of outputsy C Rp and can be represented by the production set j of attainableinputeoutput combinations:

j n

x; yRpd : x can produce y

o:

The technology is dened as L(y) {x: (x, y) C j}.The value of the efciency measure is given by q(x, y) jjxjj/jjxfjj,where q(x, y) min {q: qx C L(y)}, xf C IsoqL(y) {x:x C L(y), mx; L(y), m < 1}, is the frontier input.

A unit is considered technically efcient if the efciency mea-sure equals one. Following Charnes et al. (1978), the constant returnto scale (CRS) DEA efciency estimator, qCRS, is given by qCRS min{q:q xi C LnCRS (yi)}, where xi is the d-vector of inputs and yi is thep-vector of outputs. LnCRS (yi) is the piece-wise linear conical hull ofthe data, dened by LnCRS (yi) {x: yi Yz, x Xz, z C Rn}. WhereY (y1, y2,., yn) is a (p n) matrix of outputs, X { x1, x2,., xn} is a(d n)matrix of inputs and z is a n-vector of non-negative intensityvariables.

6 The waste is deposited by the residents in metallic or polyethylene containersmetres of infrastructure needed for paving and street lighting andto supply water or remove sewage.

The support services and transport group comprises: (i) streetcleaning, which consists of the manual or mechanical washing ofthe town streets and paved surfaces, (ii) collection of municipalsolid waste that is generated in households, industries, shops andofces, provided that it is not classied as hazardous6; and (iii)public transport, which provides mobility for citizens within themunicipal area. In addition, political authorities usually imposeobligations on public transport companies, and these obligationscan be manifested in different ways: a minimum level of service forthose users that do not have other means of transport or main-taining routes that are not economically justiable.

Urban planning services deal with the architectural ordering ofthe town, and involve the suitable distribution of residential areas,parks, leisure spaces, etc., as well as verication that the planningproposed is adapted to the town. The importance of this service isdue not only to town planning or to ensuring that building regu-lations are fullled, but to the fact that it is the municipal servicethat generates the most resources for the local council. The taxeslinked to urban development are very important for towns, spe-cically the Real Estate Tax (IBI), the Tax on Construction, In-stallations and Works (ICIO) and the Tax on the Added Value ofUrbanized Land, which together comprise more than 65% of thedistributed throughout the urban surface area that are then emptied into collectionvehicles.DEA efciency estimator is given by the solution of the linearprograms qVRS min {q: qxi C LnVRS(yi)}. LnVRS(yi) is the piece-wiselinear convex hull envelopment of the observed sample xn givenby LnVRS(yi) { x: yi Yz, x Xz, Sni 1zi 1, z C Rn}.

According to Simar and Wilson (1999), the safest approach inestimating efciency, which avoids a possible misspecication, is touse the VRS estimator.

As a result of the advancement in the development of bootstraptechniques (Simar andWilson, 2000a, 2000b), we decided to applyresampling methods and bootstrapping techniques, in accordancewith Simar and Wilson (1998). The SW-algorithm7 is given by thefollowing steps:

1) Transform the inputeoutput vectors using the original ef-ciency estimates {q, i 1,., n} as (xif, yi) (xi q, yi).

2) Generate smoothed resample pseudo-efciencies gi* asfollows: Given the set of estimated efciencies {q} use h 0,90n1/5 min {sq, R13/1.34} to obtain the bandwidthparameter h.

Generate {di*} by resampling, with replacement, from theempirical distribution {q} of the estimated efciencies.

Generate the sequence {di*} using di* di* hi* ifdi* hi* 1; 2 (di* hi*) otherwise.

Generate the smoothed pseudo-efciencies {gi*} usinggi* di* (di* di*a)/O1 h2/sq2.

3) Let the bootstrap pseudo-data be given by (xi*, yi*) (xif/gi*, yi).

4) Estimate the bootstrap efciencies using the pseudo-data andthe linear program LnVRS(yi) { x: yi Yz, x Xz,Sni 1zi 1, z C R n} as qSW* min{ q: yi Yz, qxi X*z,Sni 1 zi 1, z C R n}.

5) Repeat steps 2e4 B times to create a set of B unit-specicbootstrapped efciency estimates qSW*b, i 1,., n, b 1,., B.

Table 3 includes a year by year summary of the main variables inthis estimation. On average, in all analysed years the annual ef-ciency index (vdhat) about the provision of public services isclose to 1 (around 0.97), which represents the perfect efciency,and the average is lower only in 2002 (0.9632). However, the ef-ciency index is lower when we apply the bootstrap techniquewhich takes account of slack efciency measures, specically inyears 2002, 2003, 2006 and 2007.

3.3. Inter-annual evolution of efciency

The denition of the Malmquist indices can be made in thefollowing terms: the starting point is a group of production possi-bilities, St: St {(xt, yt)jxt can introduce yt, t 1,., T wherext Inputs vector in t and yt Outputs vector in t.

Assuming that such a group complies with the requirementsestablished by Shephard (1970), we can establish an input distancefunction, whose inverse represents ameasure of technical efciency.

Dtixti ; y

ti sup

nq < 0 :

xtiq; yti

3STo

This function takes values ranging between zero and one. Thus,when a decision unit is efcient, its distance function will be one,and if it is inefcient, its valuewill be lower than one and the higherits inefciency level is, the nearer to zero it will be. In that case, andas a factor-oriented radial indicator, we could conclude that it is7 SW-algorithm means Simar and Wilsons algorithm.

values between zero and one. On the other hand, Dtxt1; yt1 is

the same time, these administrations are severely limited in their

Table 3Descriptive statistics of annual efciency.

cien

ror)

599602546663520546377506523

B. Cuadrado-Ballesteros et al. / Uti28i i ithe distance function establishing a comparison of productivity ofcompany i during period t 1, with respect to the technology ofperiod t, that is, the proportional variation that should occur in theinput vector in t 1 to be over the frontier in t.

An index higher than 1 indicates that the total factor produc-tivity has increased from period t to period t 1; values lower than1 imply a decrease with respect to the most efcient units; and,nally, when the index takes value 1, it means a stable situation.

Table 3 includes a year by year summary of this estimation. Itshows that the mean of the Malmquist index is higher than 1 in allyears, and so the total factor productivity has risen on average fromperiod t to t 1 in Spanish municipalities.

4. Empirical research design

4.1. Sample for the analysis

The data employed correspond to the 129 local governmentswhose budgetary information was included in the Spanish PublicSector Database (BADESPE) for the period 1999e2007, inclusive. Itincludes all provincial capitals and almost all municipalities with apopulation of 10,000 ormore. Other datawere obtained from the LaCaixa Annual Statistical Report and the Spanish Statistical Institute.possible to reduce the use of inputs in the proportion includedbetween the value of the distance function and one.

The distance functions so-dened constitute the foundations tocreate the Malmquist productivity indices.

Mtixti ; y

ti ; x

t1i ; y

t1i

D

ti

xti ; y

ti

Dtixt1i ; y

t1i

Here, Dti xti ; yti represents the distance function of unit i duringperiod t (taking the technology of period t as a reference), taking

Annual efciency (vdhat) Bootstrap ef

Mean (std. error) Std. deviation Mean (std. er

1999 0.97597 (0.006448) 0.073235 0.95357 (0.002000 0.97326 (0.006573) 0.074657 0.94457 (0.002001 0.97744 (0.005881) 0.066794 0.95349 (0.002002 0.96318 (0.007393) 0.083964 0.92767 (0.002003 0.96961 (0.006001) 0.068161 0.93054 (0.002004 0.97643 (0.005897) 0.066975 0.95194 (0.002005 0.97992 (0.004341) 0.049300 0.95093 (0.002006 0.97008 (0.005849) 0.066432 0.93256 (0.002007 0.96907 (0.006011) 0.068276 0.92729 (0.00In Spain, which is well behind the leading countries in incor-porating NPM reforms (Hood, 1996), there have nevertheless beenimportant developments in the functional decentralisation8

(Cuadrado, 2008) and externalisation processes (Rami-Matasand Garca-Codina, 2006), especially in local governments, ad-ministrations that have tended to use these processes, instead ofdirect management, for delivering public services to citizens withthe aim of taking advantages of characteristics of the private sector.

The local sphere allows us to obtain a larger volume of data;moreover, these data are more homogeneous than comparisonsbetween different countries (Garca-Snchez et al., 2011c). In addi-tion, their proximity to citizens and their daily lives allows

8 Cuadrado (2008) shows that the number of public enterprises and entitiesowned by municipalities and communities raised three-fold in the last decade.capacity to satisfy the populations demands owing to their oftendelicate nancial situation. Therefore, this level of public adminis-tration may resort to the functional decentralisation of municipalservices as a means of obtaining a larger volume of public funds(Escudero, 2002). All of this may affect the efciency of local gov-ernments, so this makes Spanishmunicipalities a suitable setting foranalysis.

However, the high number of Spanish municipalities and thedisparities among them require a criterion be applied to select asample. The most adequate criterion is related to the size of thepopulation (Benito et al., 2010b; Navarro et al., 2010; Guillamnet al., 2011; Navarro-Galera and Rodrguez-Bolvar, 2011). Weselected the largest municipalities because they are the only onesobliged by law to provide their citizens with all the services listed inthe Local Government Regulatory Law, so the results take into ac-count more services than those that would be considered in asample using smaller municipalities.

Furthermore, the reform processes postulated by the New PublicManagement (NPM) paradigm are much better adapted to largecities than to the smallest municipalities, where management ismuch more informal, and it is the responsibility of a single inhab-itant, termed a non-professional mayor. These small villages maycount on an administrative expert, available one day a week, toresolve specic problems. However, in larger municipalities, theelectoral candidates are professional politicians who have a closerelation with the national party administration and who aretherefore aware of the potential repercussions of their actions atthe local level on national elections (Carrillo, 2009). For thesereasons, and in accordancewith Prado-Lorenzo and Garca-Snchez(2007), it is not necessary to include the smaller ones in this study.

4.2. Dependent and independent variablesadministrations to know better the needs of their citizens; but, at

cy (vdhat_bc) Inter-annual variation of efciency

Std. deviation Mean (std. error) Std. deviation

6) 0.0680976) 0.068443 1.7145 (0.2340) 2.6576777) 0.062094 2.2867 (0.3552) 4.0347012) 0.075328 1.4857 (0.1941) 2.2044659) 0.059165 2.2749 (0.4621) 5.2481719) 0.062112 1.8760 (0.2942) 3.3411006) 0.042892 1.6168 (0.2422) 2.7509547) 0.057545 1.2506 (0.1082) 1.2293924) 0.059447 1.5639 (0.1733) 1.968850

lities Policy 26 (2013) 23e35The dependent variables correspond to the annual efciencyindex obtained by the DEA methodology, as well as the Malmquistindex, which represents their evolution.

The independent variables correspond to the externalisationand functional decentralisation processes carried out in the localadministrations of large municipalities. Concretely, the variablesemployed are:

TOTAL_DECENTRALISATION: numerical variable that repre-sents the number of functional decentralised agencies createdin each municipality. This process may be carried out by:B COMPANIES: number of government owned public com-panies created by each local government.

B AUTONOMOUS ORGANISATIONS (AAOO): number ofautonomous bodies created by each local government.

4.3. Control variables

can control expenditure with fewer difculties in relation to

/ UtiIn order to avoid biased results, several control variables havebeen included in order to represent the economic and tourist leveland political factors. They are as follows:

GDP_pc: income level is measured using the variable grossdomestic product per capita. It has been shown that the higherthe citizens economic level, the greater the income local gov-ernment collects, and the less pressure exists on politicians andmanagers to be efcient in the provision of municipal services(Spann, 1977; Silkman and Young, 1982). In a similar way, DeBorger and Kersten (1996) nd that a higher economic levelis linked to more inefciency. However, when Gimnez andPrior (2003) analysed the impact of municipal economic levelon efciency, they concluded that differences in economic levelare not signicant when evaluating efciency.

TOURISM_INDEX: Mathieson and Passell (1976), Dez-Ticio andMancebn (2003) and Garca-Snchez (2006) explain that sea-sonal populations have an important impact on municipal ser-vices given that they increase the demand for the servicesdesigned to satisfy citizensneeds. However, ifwe examine otherinvestigations of the tourist condition and overall municipalefciency, we see there is no agreement in the literature. Boschet al. (2000) posit that the tourist level of themunicipality has animpact on efciency, specially related to the refuse collectionservices, because in some cases, the population of very touristmunicipalities is above their normal resident population. But incontrast, Bel (2006) concludes that tourist activity is not signif-icantwhen it comes to assessing the efciency ofmunicipalities.

RIGHT_IDEOLOGY: dummy variable that takes a value of 1 ifthe governing party is conservative, and 0, otherwise. It isB PUBLIC BUSINESS ENTITIES (PBE): number of municipalbusiness entities created by each local government.

B FOUNDATIONS: number of municipal foundations createdby each local government.

EXTERNALISATION: numerical variable that represents thenumber of private agencies that have acquired the right toprovide public services in each municipality.

MIXED_COMPANIES: numerical variable that represents thenumber of mixed companies that are created in each munici-pality. Both public and private sectors are owners of thesecompanies.

In addition, we include the following variables that representthe number of the different agencies created by right-wing parties.The use of decentralised agencies with the aim of increasing thelevel of public debt is more used by left-wing parties (Cuadrado-Ballesteros et al., 2013b). So, maybe the right-wing parties usethese entities with the aim of raising the efciency.

RIGHT_TOTAL_DECENTRALISATION, RIGHT_COMPANIES,RIGHT_AAOO, RIGHT_PBE, RIGHT_FOUNDATIONS, RIGHT_-EXTERNALISATION, RIGHT_MIXED_COMPANIES: variablesthat were calculated as the product of RIGHT_IDEOLOGY andthe variables that represent the different modes of public ser-vices delivery. These variables show the decentralised andexternalised entities that have been created by right-wingparties. With them we want to test if right-wing parties arein favour of private control mechanisms in order to improvepublic sector efciency (Borge et al., 2008), such as it iscommonly assumed.

B. Cuadrado-Ballesteros et al.commonly assumed that right-wing parties are in favour ofother parties, and so efciency may not be the criterion usedwhen local governments have to decide how public servicesare to be managed and a negative relationship between elec-toral support and efciency of public services has been found(Balaguer-Coll et al., 2007).

4.4. Research models

In order to achieve the proposed aim of analysing the effect offunctional decentralisation and externalisation processes on theefciency of local public services, and based on the variablesselected, we estimated the following models, in which efciencyindexes depend on the modes of public services delivery (func-tional decentralisation and externalisation) and on different controlvariables included to avoid biased results.

Efficiency b0 b1Decentralisationit b2EXTERNALISATIONit b3MIXED COMPANIESit b7RIGHT IDEOLOGYit b8POLITICAL COMPETITIONit b9STRENGTHit b11TOURISM INDEXit b10GDP pcit b4RIGHT Decentralisationit b5RIGHT EXTERNALISATIONit b6RIGHT MIXED COMPANIESit 1i m1it

[1]

where,

Efciency represents different kinds of efciency: (i) annualefciency; and (ii) the inter-annual variation of efciencyintroducing budget discipline (Allers et al., 2001) and privatecontrol mechanisms in order to improve public sector ef-ciency (Borge et al., 2008). However, previous evidence iscontradictory: Vanden et al. (1993) and Benito et al. (2010a) donot nd a signicant inuence of the political ideology of theincumbents. In contrast, De Borger and Kersten (1996), and DeGrauwe (1985) observed a direct relationship between pro-gressive parties and local authorities efciency.

POLITICAL_COMPETITION: numerical variable that representspolitical rivalry. It is measured according to Sol (2006) as thedifference between the percentages of votes obtained by theparties coming in rst and second place. Based on the WeakGovernment Hypothesis, the intuition is: the higher thecompetition, the higher the efciency through higheraccountability, because politicians will be pressed to assignbetter available resources if they have more opponents for theelections. This hypothesis shows that fragmentation has anegative effect on decision-making power, and so it impacts onthe ability of governments to be efcient (Roubini and Sachs,1989; Volkerink and de Haan, 2001; Ashworth et al., 2005,2006; Coff and Geys, 2005; Goeminne et al., 2007). In addi-tion, political competition prevents politicians from extractingrents in exchange for services (Fisman and Gatti, 2002), and sothey can focus on providing services efciently.

STRENGTH: numerical variable identifying the electoral sup-port the local government obtained in the latest elections,represented by the percentage of seats obtained by the gov-erning party. If the governing party has an absolute majority, it

lities Policy 26 (2013) 23e35 29measured by the Malmquist index.

Decentralisation represents each of the different decentral-ised entities: COMPANIES, AAOO, PBE and FOUNDA-TIONS, and all of them jointly (TOTAL_DECENTRALISATION).i indicates the municipality and t refers to the time period,b are the parameters to be estimated,i represents the persistent unobserved heterogeneity,mit represents the classic disturbance term.

To estimate these models, we use truncated regressions, whichhave been shown by Simar andWilson (2007) to provide better andconsistent statistical inference than Tobit regressions. These au-thors showed that using the Tobit regression (also called a censoredregression model) is an inappropriate approach. Moreover, theyjustied a truncated regression, because of its satisfactory perfor-mance in Monte Carlo experiments.

It is worth noting that the Tobit model is designed to estimatelinear relationships between variables in cases where the depen-dent variable shows either left or right censoring. When censoringvariables, it is common to set a threshold, so that there can becensoring above that threshold (which takes place in cases with a

Table 4 provides the descriptive statistics for independent var-iables, showing that, on average, each municipality used sevendecentralised entities between 1999 and 2007 (see mean ofTOTAL_DECENTRALISATION). Of these, two or three were publiccompanies, three or four were autonomous organisations, and atmost, one foundation or public business entity was used. Of thesemunicipalities, 49.35% were governed by right-wing parties (seemean of RIGHT IDEOLOGY). In addition, the difference between thepercentages of votes obtained by the parties coming in rst andsecond place is about 0.17 and the percentage of seats obtained bythe governing party is 0.46 on average.

5.2. Explanatory analysis

Table 5 shows the effect of the different modes of public servicesdelivery on the inter-annual variation in local government ef-ciency. Model 1 takes into account the three general modes ofpublic services delivery: functional decentralisation, externalisa-tion andmixed companies. Only EXTERNALISATION is statisticallysignicant at the 90% condence level, with a negative effect on the

061054457753417278141353917281.79855468956642922838950

B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e3530value at or above that threshold) or below the threshold (values thatfall at or below, that are nally censored). With censored variables,all observations are in the dataset, but the real values of some ofthem are not known. With truncation some of the observations arenot included in the analysis because of the value of the variable.

Specically, we apply Simar and Wilsons (2007) Algorithm#1.This process is carried out in a way similar to that used for theevolution of productivity estimated through the Malmquist Index.The truncated regression is estimated in Stata, since this softwarelets us treat information as panel data.

5. Empirical results

5.1. Descriptive analysis

Table 3 presents the statistics for the dependent variables dis-cussed above. Over the entire period considered, mean annual ef-ciencies increased by around 97%, although the index presents alower value when bootstrapping processes are used (these pro-cedures guarantee the validity of efciency measures againstsample modications). A Malmquist index higher than one in-dicates a positive evolution of local government efciency from1999 to 2007.

Table 4Descriptive statistics.

Variable Obs Mean

COMPANIES 1161 2.689FOUNDATIONS 1161 0.217AAOO 1161 3.357PBE 1161 0.100TOTAL_DECENTRALISATION 1161 6.364EXTERNALISATION 1161 1.796MIXED_COMPANIES 1161 0.255POLITICAL_COMPETITION 1161 0.175STRENGTH 1161 0.468TOURISM_INDEX 1030 412.1GDP_pc 1161 1845RIGHT_COMPANIES 1161 1.087RIGHT_FOUNDATIONS 1161 0.096RIGHT_AAOO 1161 1.490RIGHT_PBE 1161 0.014RIGHT_TOTAL_DECENTRALISATION 1161 2.689RIGHT_EXTERNALISATION 1161 0.907RIGHT_MIXED_COMPANIES 1161 0.136

Frequency

RIGHT_IDEOLOGY 0.4935401level of annual efciency. Of the control variables, POLITICAL_COMPETITION and TOURISM_INDEX are statistically signicantat 95% and GDP_pc is signicant at 90%; all of these have anegative impact on the efciency index.

Models 2, 3, 4 and 5 show the results for each type of decen-tralised entity. In Model 2, the statistically signicant variables inthe analysis are COMPANIES and EXTERNALISATION, at the 90%condence level, and with a negative effect on the annual ef-ciency. POLITICAL_COMPETITION, TOURISM_INDEX andGDP_pc are also statistically signicant at 95%, also with anegative effect on the efciency index.

For Model 3, the statistically signicant variables are FOUN-DATIONS and EXTERNALISATION, with a negative impact on theannual efciency of local governments. In addition, POLITICAL_-COMPETITION and GDP_pc are signicant at the 95% and 90%condence levels, respectively. All of these negatively affect thelevel of annual efciency of local governments. For Model 4,EXTERNALISATION, POLITICAL_COMPETITION and TOUR-ISM_INDEX are statistically signicant at 90%, 95% and 99%,respectively. Again, all have a negative effect on the efciency in-dex. Autonomous organisations have a positive effect on efciencyalthough this is not statistically signicant. Finally, in Model 5, therelevant variables are PBE and RIGHT_PBE, at the 99%

Std. dev. Min Max

3.723498 0 273 0.7983292 0 7

3.309685 0 192 0.4635036 0 4

6.348831 0 430.7462709 0 30.4539323 0 2

2 0.1258471 0 0.67 0.0919993 0.25 0.76

1085.503 0 98985079.808 0 33834.272.213018 0 21

6 0.5455111 0 72.517551 0 14

5 0.1460724 0 24.446267 0 32

1 1.042683 0 39 0.3634424 0 2

Table 5Effects of public services delivery on annual efciency.

Model 1 Model 2 Model 3 Model 4 Model 5

Coef. Std. err. Coef. Std. err. Coef. Std. err. Coef. Std. err. Coef. Std. err.

TOTAL_DECENTRALISATION

0.0005976 0.0004305

COMPANIES 0.001272*** 0.0007054FOUNDATIONS 0.0078243** 0.0039844AAOO 0.0002047 0.0007788PBE 0.0231262* 0.0048902EXTERNALISATION 0.0062189*** 0.0035568 0.0066029*** 0.0035601 0.0058448*** 0.0035368 0.0064587*** 0.0035671 0.0061333*** 0.0035202MIXED_COMPANIES 0.0067483 0.006611 0.0056126 0.0066458 0.007004 0.0066111 0.0067958 0.0066639 0.0046386 0.0065612RIGHT_IDEOLOGY 0.0164057 0.0125964 0.0147025 0.0125764 0.0017757 0.0110831 0.013654 0.0117693 0.0143366 0.0110436POLITICAL COMPETITION 0.0687855** 0.0281629 0.0647501** 0.0285228 0.0662563** 0.0278854 0.069435** 0.0279451 0.0619545** 0.0277767STRENGTH 0.0352038 0.0391009 0.0304355 0.0394346 0.0323407 0.0386573 0.0364308 0.0388514 0.0192875 0.0389877TOURISM_INDEX 5.26E-06** 2.24E-06 4.71E-06** 2.11E-06 1.00E-06 2.27E-06 7.02E-06* 1.96E-06 2.70E-06 1.93E-06GDP_pc 8.55E-07*** 4.78E-07 9.69E-07** 4.77E-07 8.67E-07*** 4.70E-07 7.34E-07 4.82E-07 7.34E-07 4.70E-07RIGHT_TOTAL_

DECENTRALISATION0.0011134 0.0007126

RIGHT_COMPANIES 0.001748 0.0013048RIGHT_FOUNDATIONS 0.008313 0.0051775RIGHT_AAOO 0.001788 0.0012721RIGHT_PBE 0.0377766* 0.014044RIGHT_EXTERNALISATION 0.0061065 0.0055127 0.0062983 0.0055993 0.0030465 0.0054006 0.0057308 0.005415 0.0064479 0.0053892RIGHT_MIXED_

COMPANIES0.0144621 0.0090494 0.0140305 0.0090927 0.01833** 0.0089124 0.0141688 0.0089628 0.0127415 0.0088267

d01 0.0015861 0.0079022 0.0019085 0.0078995 0.001823 0.0078528 0.0011998 0.0078992 0.001358 0.0078203d02 0.0236007* 0.0079634 0.0231721* 0.0079586 0.0232958* 0.0079099 0.0241457* 0.0079614 0.023871* 0.0078774d03 0.0211367* 0.0080726 0.020612** 0.0080716 0.0199449** 0.0080022 0.0216046* 0.0080563 0.0207751* 0.0079722d04 0.0010971 0.0082423 0.0017576 0.0082378 0.0039002 0.0081867 0.0003005 0.0082141 0.0012284 0.008123d06 0.0161772*** 0.0086989 0.0149648*** 0.0086892 0.0121844 0.0086274 0.01734** 0.0086603 0.0162023** 0.0085337d07 0.0215921** 0.0088933 0.0199874** 0.0088653 0.0162781*** 0.0088221 0.0229476* 0.008864 0.0213484** 0.0086981_cons 0.9792882* 0.0185391 0.9826596* 0.018695 0.9737542* 0.0180201 0.9731865* 0.0181706 0.9820339* 0.0180858

B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e35 31condence level, EXTERNALISATION at 90% and POLITICALCOMPETITION at 95%. All of them have a negative effect on theannual efciency, except the public business entities created by

*, ** and *** indicate signicance at the 1%, 5% and 10% level, respectively.right-wing governing parties.

Table 6Effects of public services delivery on inter-annual variation of efciency.

Model 1 Model 2 M

Coef. Std. err. Coef. Std. err. C

TOTAL_DECENTRALISATION

0.0091361 0.0231884

COMPANIES 0.0058966 0.0381822FOUNDATIONSAAOOPBEEXTERNALISATION 0.2335579 0.1918028 0.2309398 0.1921229MIXED_COMPANIES 0.2746374 0.3569369 0.275391 0.3590955 RIGHT_IDEOLOGY 0.2300469 0.6828895 0.0613953 0.6829815POLITICAL COMPETITION 0.2077118 1.519295 0.3880838 1.539445 STRENGTH 1.703228 2.100597 1.935057 2.120794TOURISM_INDEX 0.0000128 0.0001233 0.0000723 0.0001161 GDP_pc 6.53E-06 0.0000253 9.93E-06 0.0000253RIGHT_TOTAL_

DECENTRALISATION0.0139371 0.0379715

RIGHT_COMPANIES 0.0040536 0.0689636RIGHT_FOUNDATIONS RIGHT_AAOORIGHT_PBERIGHT_EXTERNALISATION 0.1765492 0.2992764 0.1286283 0.304284 RIGHT_MIXED_

COMPANIES0.8539368*** 0.4891089 0.9225768*** 0.4918457

d01 0.5618015 0.3985466 0.202138 0.4415601d02 0.243163 0.4004236 0.7556573 0.43032d03 0.5526443 0.4048597 0.0535627 0.4231281d04 0.1560998 0.4121769 0.728637 0.4147804d06 0.4776747 0.4332463 0.3216144 0.4080228d07 0.1401369 0.4427806 0.330265 0.3981349 _cons 0.5217489 1.007036 0.1513473 1.11897

*** indicates signicance at the 10% level, respectively.Our results show that externalisation is harmful to efciency inSpanish local government, which is in accordance with the popularview of this question, i.e. that the involvement of the private sector

in the provision of public services does not guarantee greater

odel 3 Model 4 Model 5

oef. Std. err. Coef. Std. err. Coef. Std. err.

0.257407 0.20724140.0384311 0.0422394

0.0578194 0.26741760.2193783 0.1917771 0.2489577 0.1922449 0.2282207 0.19175140.2371746 0.359058 0.23794 0.3595147 0.2837442 0.35802620.1042354 0.6043279 0.1941308 0.63648 0.1205084 0.60345170.2609327 1.512196 0.3632296 1.508047 0.2685288 1.5146011.867416 2.087367 1.899719 2.086007 1.690349 2.1147790.0001379 0.0001256 5.98E-06 0.000107 0.0000533 0.00010710.0000103 0.0000251 5.39E-06 0.0000255 0.0000103 0.0000251

0.1487092 0.27175690.0245625 0.0682654

0.3477093 0.79946560.1181388 0.2946633 0.1662639 0.2936056 0.1531666 0.29490720.887546*** 0.4847455 0.828402*** 0.4840236 0.9194603*** 0.4822358

0.2687994 0.4421376 0.1473583 0.4407579 0.2007161 0.43735850.818402 0.4314155 0.7098484 0.4297969 0.755237*** 0.42714930.0087993 0.4245843 0.0921647 0.4221976 0.0542091 0.4202270.795366 0.4175159 0.6983579 0.4152015 0.7244367*** 0.41334860.3476551 0.4079864 0.3002798 0.4087686 0.3187414 0.40729390.3216357 0.3980518 0.3364651 0.3980037 0.3321873 0.39803740.1039804 1.075853 0.3749493 1.078355 0.2640827 1.078748

decentralisation. Moreover, these studies often present other lim-

/ Utiefciency, such as Bel andWarner (2008) and Bel et al. (2009) in thecase of waste disposal and water services in Spain, by Garca-Snchez (2006), Garca-Rubio et al. (2009) and Ordoez de Haroand Bru-Martnez (2003) for water services in Spain, and byBosch et al. (2000) for waste disposal services in Spain. Thisconclusion has also been reached in studies elsewhere, for examplein the USA (Bhattacharyya et al., 1994, 1995; Wallsten and Kosec,2005), England and Wales (Saal and Parker, 2001; Bottasso andConti, 2003; Saal et al., 2007), Brazil (Faria et al., 2005; Seroa DaMotta and Moreira, 2006; Sabbioni, 2008) and some countries inAfrica (Kirkpatrick et al., 2006).

The same results are also applicable to the functional decen-tralisation process: a negative impact on efciency is caused by allkinds of entities, especially companies, foundations. It means thatthese agencies produce poor coordination, overlapping functionsand the misuse of resources (Rhodes, 1994). In this respect, ac-cording to Talbot and Johnson (2007) and Andrews and Boyne(2009), the evidence suggests that large bureaucracies arecheaper and that regrouping processes should be encouraged.However, when public business entities are created by right-wingparties, they have a positive impact on the annual efciency ofthe local government.

Table 6 shows the effects of the modes of public services de-livery on the inter-annual variation of the efciency. In all models,the only relevant variable is RIGHT_MIXED_COMPANIES, with apositive effect on this variation. Thus, the use of mixed companiesby right-wing parties does increase the inter-annual efciency inSpanish local government. Thus, to a certain extent, there is arelation between the political ideology of the governing party andthe level of local government efciency, as reported by De Borgerand Kersten (1996) and De Grauwe (1985). However, their resultsare contrary to ours.

Finally, our ndings show that annual efciency is lower inmunicipalities that are characterised by high political competition,as was expected, because political competition prevents politiciansfrom extracting rents in exchange for services (Fisman and Gatti,2002), and so they must focus on providing services efcientlyand on increasing their decision-making power, and this againimpacts on local government efciency (Roubini and Sachs, 1989;Volkerink and de Haan, 2001; Ashworth et al., 2005, 2006; Coffand Geys, 2005; Goeminne et al., 2007). GDP was not found to bevery signicant in our analysis, which is in accordance withGimnez and Prior (2003). The tourism index impacts negatively onthe annual efciency, according to Bosch et al. (2000).

6. Conclusions

There is generalised concern about the ineffectiveness and in-efciency detected in the rendering of public services at all levels,these failings normally being associated with bureaucracy andpolitical incompetence, and closely linked to the very nature ofpublic assets (Prado-Lorenzo and Garca-Snchez, 2010).

In order to overcome these problems, international studies haveled to the design of a new public operating system. The aim of thisnew approach is to achieve a public sector which operates exclu-sively in areas where there does not exist a more suitable provider,which might render the service effectively and efciently (Pilcher,2005). To do so, the public sector externalises public serviceswhenever possible or collaborates with the private sector to meetcitizens needs. Moreover, internal restructuring is carried out, toeliminate bureaucracy, adopt more rational processes and obtaingreater autonomy in management by the creation of decentralisedunits (Greiling, 2006; Kolthoff et al., 2007).

The empirical evidence compiled to date is contradictory as

B. Cuadrado-Ballesteros et al.32regards the best form of management for public services, and noitations: in general, their analyses are carried out only for onespecic year, and so the real effect is not apparent; and/or theyfocus only on one specic region; and/or only one or two servicesare addressed. These factors mean that the evidence obtainedcannot be generalised to all public services.

Therefore, the aim of the present study is to analyse the effect ofprocesses of functional decentralisation and externalisation on theefciency of Spanish public services, in order to contribute to theempirical evidence available on this question. For this purpose, weexamined 129 Spanish municipalities with populations of over10,000 for the period from 1999 to 2007, inclusive. Furthermore, toobtain more precise ndings, the different forms of functional de-centralisationwere disaggregated according to the legal form of theorganisation (public companies, autonomous organisations, publicbusiness entities and foundations).

The results obtained show that involving the private sector inpublic services delivery through outsourcing improve neither thelevel of annual efciency nor the inter-annual variation of this levelof local governments in Spain. Similar effects were observed fordecentralised entities, especially public companies and foundations.

However, the public business entities could improve the level ofannual efciency in Spanish local governments and the combina-tion of public and private sector delivery, in the form of mixedcompanies, may increase the inter-annual efciency of public ad-ministrations. But this effect is observed when such agencies(public business entities and mixed companies) are created byright-wing governing parties.

This means that rationales proposed to use functional decen-tralisation and externalisation for public services delivery havelimitations focussing efciency. Probably, problems of coordinationand overlapping of activities and resources reduce efciency oflocal governments. In the case of externalisation processes, theintroduction of private sector for public services delivery may havethe potential to produce considerable fraud and corruption becausepoliticians intervene too often in the selection of providers, thussome cases of favouritism in the allocation of contracts may beoccurred. In these cases, politicians are not worried about efciencyof local government; they have opportunistic behaviour instead ofworking for social welfare of citizens.

Our results show that only public business entities and mixedcompanies may improve the efciency of public administrations,however, these agencies are the less used in Spain (Cuadrado-Ballesteros et al., 2013a). So, efciency is an important aspect tobe improved in Spanish local governments, focussing public ser-vices delivery.

Future lines of research could nd this paper limited. Specially, itwould be interesting to increase the sample, taking into accountinformation about a larger period of time and more local govern-ments. In addition, it could be interesting do a comparative analysisbetween local governments of different countries, taking into ac-counting socioeconomic and cultural aspects.

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B. Cuadrado-Ballesteros et al. / Utilities Policy 26 (2013) 23e35 35

Effect of modes of public services delivery on the efficiency of local governments: A two-stage approach1 Introduction2 Modes of public services delivery and efficiency of local government: research hypotheses2.1 Modes of public services delivery at local level in Spain2.2 The efficiency of local governments

3 Measuring efficiency3.1 Input and output variables for DEA index3.2 Annual efficiency3.3 Inter-annual evolution of efficiency

4 Empirical research design4.1 Sample for the analysis4.2 Dependent and independent variables4.3 Control variables4.4 Research models

5 Empirical results5.1 Descriptive analysis5.2 Explanatory analysis

6 ConclusionsReferences