Portuguese local government relative efficiency: a dea approach

Abstract

It is widely accepted that performance measurement in the Public Sector is a difficult task, either in terms of efficiency or in terms of effectiveness. The most important reason for this relates to the lack of objective measures, given the market-aside operation of governmental activities. Therefore traditional methods of performance measurement, such as those based on the operating statement and the net income, tend fail. It is typical that public bodies’ outputs are multiple and qualitative and consequently do not have the physical characteristic of being countable or divisible. Portuguese Local Government has, in the last decade, undergone considerable management changes under the flag of efficiency improvement, namely additional competencies, supplementary and more diverse financial resources and a new accounting system. In this context, this paper assesses the efficiency of Portuguese Continental municipalities, using year 2004 data and following a data envelopment analysis (DEA) methodology in order to provide a relative efficiency indicator. The analysis compares the ratio between resources as inputs (“undertaken commitments”) and the activities accomplished as outputs, considering the functional classification used in municipalities’ accounting and financial system. This research adds to the knowledge of local authorities’ performance the possibility of establishing a functioning ranking, nowadays increasingly important in what concerns financing issues. The preliminary results show that larger municipalities tend to be more efficient.