Jerry Miner

Empirical Evaluation of Bureaucratic Models of Inefficiency

Two separate but related strands of literature exist regarding the efficiency of public sector service provision – the theoretical base developed in the bureaucratic models of supply and the methodological base developed in the operations research and economic literatures. Most analyses focus exclusively on either the measurement or causes of inefficiency. This paper seeks to empirically test bureaucratic models of supply by drawing on the measurement literature. In anticipation of the results, it is found that there does exist empirical evidence supporting some of the implications of these models.

Potential Cost Savings from School District Consolidation: A Case Study of New York.

Abstract This article presents the results of a detailed study of potential cost savings from consolidation of New York school districts. It extends past research on consolidation by developing a theoretical framework which distinguishes several dimensions of economics of scale and defines an empirical cost function for schooling. The results indicate potentially sizeable costs savings from consolidation of districts with fewer than 500 pupils. Using such districts as candidates for consolidation, the study examines in detail the implications of merging these districts with one of their neighbors and finds relatively few districts strong candidates for full consolidation in New York, although some may benefit from sharing of administrative and support functions. The estimated cost model also sheds light on potential diseconomies associated with large city school districts. While findings apply directly to New York, the method developed here has general relevance to state education policy by helping to target candidate school districts for consolidation, and, where consolidation is not feasible, adjusting state aid formulae to reflect more accurately the cost impacts of scale.

Measuring equity of educational outcomes in the presence of inefficiency

Abstract Disparities in school expenditures have been a major concern in school finance. Equalization of spending presumably fulfills the ideal of equal educational opportunity. Differences in spending, however, result not only from differences in service provision, but also from variations in resource prices, exogenous cost environments and efficiency. As a result, equity measures that use expenditures per pupil as the object will capture these other variations and, therefore, may not be indicative of unequal educational outcomes. The purpose of this paper is to provide a systematic non-parametric framework for measuring outcome equity of school districts. Data Envelopment Analysis is used to adjust expenditures for differences in cost environments and to control for inefficiency in New York State school districts. The results suggest that nearly one-half of the measured inequity can be attributed to sources other than disparities in outcomes.

The Reagan Deficit

This paper analyzes the U.S. federal budget deficit during the Reagan administration and its short- and longer-term consequences for the aggregate economy. While budget policies of the Reagan administration do not account for all of the increases in annual deficits or in outstanding federal debt during the Reagan era, an analysis indicates that the administrations program of tax reduction and defense spending build-up were the major sources of deficit growth after the recovery from the recession of 1981-82. For the near-term future, the legacy of the Reagan deficits includes (1) the failure of domestically owned capital formation to expand at rates comparable to our major trading partners, (2) the necessity of diverting U.S. products and income to servicing foreign creditors, and (3) the need for rates of interest and profits to be high enough to induce foreigners to retain their holdings of U.S. assets lest divestiture cause a virtual collapse in the exchange rate. The final evaluation of the impact of the Reagan deficit hinges on whether the Reagan era of high consumption prosperity proves a good trade-off with the consequences of attenuated macropolicy responses to recession, lower levels of U.S. owned capital stock, and remittances to foreign creditors.

The Pure Theory of Public Expenditure: General Equilibrium

The preceding chapter has shown how the characteristic features of pure public goods, joint supply and the inability to exclude, can be encompassed by partial equilibrium analysis. An important conclusion of the partial analysis of public goods is that while the properties of a normative, competitive-like equilibrium solution can be known, no reasonable assumptions about motives of, and interactions among, individuals ensures that it will be reached. Nonetheless, the nature of the partial equilibrium analysis and the issues that arise in the determination of a solution are significant because they indicate the fundamental similarities and differences between public and private goods. But, as has been demonstrated in so many other areas of economic analysis, partial equilibrium takes as given many of the factors which are in fact variables in an overall system. A comprehensive pure theory of public finance must, therefore, be cast in general rather than partial equilibrium terms.

Determinants and Consequences of Public Expenditures

The positive theory of the public sector, as with other subdivisions of economics, has as its concern the formulation and testing of behavioral hypotheses. Economists’ interests in the positive aspects of government behavior naturally lie in those hypotheses that concern real or financial resources. The main hypotheses relevant to the positive theory of public economics encompass those that deal with the determination of levels of public expenditures and revenues along with those that explain the consequences of such outlays and revenue collections upon the economic status of society. Because this book is concerned with public expenditures, positive theories of taxation and tax incidence and the empirical studies of these matters are excluded from discussion here, except insofar as revenue considerations are relevant to expenditure determination. Furthermore, as the introductory chapter explains, stabilization aspects of expenditures are not systematically examined in this study, and, therefore, there is no development here of those aspects of positive theory that deal with the effects of budget policy on aggregate demand.

The Politics of Collective Choice

The framework for public expenditure decisions explored in Chapters 2 to 4 is grounded on individualistic assumptions. The satisfaction of social wants, in this approach, must rest on the preferences of sovereign consumers. Optimality for the public sector is conceived of in terms of conformity with individual preferences in a manner strictly analogous to the conformity with preferences that defines Pareto optimality in the private sector.

The Nature of the Public Sector

Perhaps the most general observation that can be made about government activities is that they have grown, both relatively and absolutely, in all countries of the world. This commonplace observation must necessarily serve as the starting point for any systematic treatment of the political economy of public expenditure, for the growth of government lies at the heart of continued controversy over the role of the public sector. This controversy is particularly acute in a mixed economy where the public sector is growing more rapidly than the private and where it often appears that this growth is at the expense of, or contributes to a diminution in, private economic activity. In any economic system, regardless of the relative growth of public and private activities, there will be continuously difficult and controversial choices in selecting the appropriate composition of government expenditure and in choosing among alternative government programs that are intended to accomplish social goals.

Benefit-Cost Analysis

Benefit-cost analysis is a technique for assessing the economic utility of a public investment project. The technique can be used to indicate whether a specific expenditure should be undertaken. It can also be used to determine the appropriate scale of investment and thus the optimum size of a specific investment project, as well as the product-mix, capital intensity, and other aspects of project design. A benefit-cost approach can also be employed as the framework for a general theory of government investment. In this chapter emphasis will be placed on benefit-cost as a decision technique, although some attention is also directed to benefit-cost as investment theory.

Market Failure, Public Policy, and Public Expenditure

Analysis of the pure theory of public expenditures reveals a pathological case of market failure. That is, goods with the “double polar” characteristics of joint supply and the impossibility of exclusion are such that their production will occur only under public organization (collective supply). Yet, in itself, the pure theory of public finance constitutes neither an economic rationale for the state nor an adequate economic theory of government expenditure. An economic theory of the state, consistent with the traditions of individualistic economics, may be developed around the assumption that the state aims to maximize societal economic welfare defined in terms of conformance with individual preferences.1 If market-determined prices are presumed to be the primary way in which preferences are manifest, such a theory requires a thoroughgoing description of all sources of failure of decentralized markets coupled with an analysis of the potentialities of various government policies to deal with these failures. The analogous economic theory of public expenditure must elucidate the specific role of government budgetary outlays as one among various state actions intended to deal with market failure. Further, it must distinguish public expenditures whose purpose is to subsidize households and private market organizations from those government expenditures for goods and services which then are either provided through collective organization and supply or are sold by the state.