Measuring local government technical (in)efficiency: An application and comparison of FDH, DEA and econometric approaches

Economic efficiency – understood in terms of jurisdictions providing a maximum amount of output for a given level of inputs – is one potential means to evaluate public policies. Various approaches, however, co-exist to measure the (technical) efficiency of organizations. Given that these rely on different underlying assumptions, it is important to assess whether, and to what extent, the approach taken affects the outcome of efficiency studies. The present paper employs a dataset of local governments in Flanders in 2000 to compare the three common approaches to measure (in)efficiency (i.c. FDH, DEA and econometric techniques). Our results indicate that the methodological choices of instrumentation have a substantial effect on analytic performance measurement. Hence, assessing the robustness of the results across various approaches to efficiency measurement is crucial to avoid incorrect inferences.