Analysing the Effectiveness of Public Service Producers with Endogenous Resourcing

Abstract One of the main motivations for productivity analysis is to assess the scope for overall improvements in the output possibilities of individual producers. At times of fiscal and government budgetary pressures, attention focuses particularly on the output potential of public service providers and its relationship to the inputs provided by government funding. Public services, such as education and healthcare, are themselves an important form of economic activity whose performance is of wide public interest, and which merit an adequate recognition of the richness of the additional considerations which may arise in making effectiveness assessments using frontier techniques such as Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA). The interesting example of university Departments illustrates one such additional consideration, namely endogeneity of the available resource levels through their dependence on the Department’s achieved outputs of teaching and research. Fortunately progress can be made in the presence of such endogeneity through the application of SFA to the assessment of the overall effectiveness and performance of the public service provider, and their decomposition into technical and allocative components, using the notion of an Achievement Possibility Set that includes the multiplier effects which such resource endogeneity generates.