Local governments' efficiency: a systematic literature review—part II

• Date: 01 July 2018
• Author: Isabel Narbón‐Perpiñá,Kristof Witte
• Published date: 01 July 2018
• DOI: http://doi.org/10.1111/itor.12389

Intl. Trans. in Op. Res. 25 (2018) 1107–1136

DOI: 10.1111/itor.12389

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Local governments’ efficiency: a systematic literature

review—part II

Isabel Narb´

on-Perpi˜

n´

aaand Kristof De Witteb,c

aDepartamento de Econom´

ıa, Universitat Jaume I, Avda Vicente Sos Baynat s/n, E-12071, Castell´

on de la Plana, Spain

bTop Institute for Evidence Based Education Research, Maastricht University, Kapoenstraat 2, MD 6200, Maastricht,

The Netherlands

cLeuven Economics of Education Research, Katholieke Universiteit Leuven, Naamsestraat 69, 3000 Leuven, Belgium

E-mail: narbon@uji.es [Narb´

on-Perpi˜

n´

a]; k.dewitte@maastrichtuniversity.nl, Kristof.dewitte@kuleuven.be [Witte]

Received 27 October 2016; receivedin revised form 1 December 2016; accepted 4 December 2016

Abstract

The efficient management of the available resources in local governments has been a topic of high interest

in the field of public sector. We provide an extensive and comprehensive review of the existing literature on

local governments’ efficiency froma global point of view, covering all articles from 1990 to August 2016. This

paper is the second of two. It covers the aspects related to local governments’ efficiency measurement along

with its determinants, that is, taking into account the effect of environmental variables over efficiency. First,

we describe which techniques have been used to incorporate environmental variables in the context of local

governments. Second, we provide a classification for the determinants used and summarize their impact on

efficiency. Finally, we discuss some operative directions and considerations for further research in the field.

Keywords:efficiency; local government; survey; contextual factors

1. Introduction

Over the last 30 years, there have been many empirical studies that have focused on the evaluation

of efficiency in local governments from multiple points of view and contexts. Following De Borger

and Kerstens (1996a), it is possible to identify two strands of empirical research. On the one hand,

some studies concentrate on the evaluationof a particular local service, such as refuse collection and

street cleaning (Bosch et al., 2000; Worthington and Dollery, 2000, 2001; Benito-L´

opez et al., 2011;

Benito et al., 2015), water services (Garc´

ıa-S´

anchez, 2006a), street lighting (Lorenzo and S´

anchez,

2007), fire services (Garc´

ıa-S´

anchez, 2006b), library services (Stevens, 2005) or road maintenance

(Kalb, 2012). On the other hand, other studies evaluate local performance from a “global point of

view” considering that local governments supply a wide variety of services and facilities.

C

2017 The Authors.

International Transactionsin Operational Research C

2017 International Federation of OperationalResearch Societies

Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148,

USA.

1108 I. Narb´

on-Perpi˜

n´

a and K. De Witte / Intl. Trans. in Op. Res. 25 (2018) 1107–1136

From this global point of view, manyinvestigations haveattempted to determine whether external

factors affect local governments’ performance. Municipalities face different environmental condi-

tions in terms of social, demographic, economic, political, financial, geographical and institutional,

among others. These environmental variables can have a huge impact on the efficiency scores be-

cause they are beyond the control of local managers. For example, municipalities located in tourist

areas may have higher costs when providingsome public services and facilities during some periods

of the year. These municipalities could be unable to achieve the “best practice” due to their relative

harsh environment and, as a consequence, leading to biased efficiency results and wrong-headed

policy implications. Therefore, if local governments are affected by external factors, performance

analysis should control for this heterogeneity. Efficiency estimations, which do not account for the

operational environment, have only a limited value (De Witte and Kortelainen, 2013).

We provide a systematic review of the existing literature on determinants of local governments’

efficiency from a global point of view, coveringall articles from 1990 up to the year 2016. This paper

is the second of two.While in the companion paper (Narb ´

on-Perpi˜

n´

a and De Witte,2017) we focused

on the basic aspects of local governments’ efficiency measurement (i.e., input and output indicators,

and methods employed), in this paper we take into account the incorporation of environmental

variables in the efficiency estimation. More specifically, this paper contributes to the literature in

two major aspects.First, it describes which techniques have been used to incorporate environmental

variables in the context of local governments. Second, it provides a classification for the operational

environment. In local government efficiency measurement, the inclusion of environmental variables

is not unanimous since there is a lack of a clear and standard classification (Da Cruz and Marques,

2014). We identify all variables used in previous literature according to the classifications proposed,

and comment their correlation with efficiency.

In this paper, the review starts from the 84 articles obtained from the systematic review process

carried out in the companion paper (Narb´

on-Perpi˜

n´

a and De Witte, 2017). As a new criterion for

inclusion, we focus on the studies which included environmental variables in the analysis. Finally,

we obtained 63 studies. To the best of our knowledge, these literature reviews are the most complete

source of references on local government efficiency analysis. We show a complete overview of the

variables selection, the methodologies employed as well as some considerations for further work.

The remainder of the paper is organized as follows. Section 2 provides the methodologies used

to incorporate environmental variables in the analysis. Section 3 proposes a classification and

comments the impact of the different variables over efficiency. Finally, Section 4 discusses the main

conclusions and suggests operative directions for future researchers in the field.

2. Methodological approaches

Many studies have dealt with estimating how the contextual variables that face municipalities affect

their performance. Table A1 provides a review of the studies using the different approaches to

incorporate environmental variables in the efficiency estimation.

On the one hand, the empirical studies on local government efficiency which used traditional

non-parametric methodologies (such as DEA or FDH) usually include external or environmental

C

2017 The Authors.

International Transactionsin Operational Research C

2017 International Federation of OperationalResearch Societies