Public Sector Inefficiency in Large U.S. Cities

Much of the economic analysis of local governments assumes that local policymakers operate in a competitive environment where cities produce a level of local public sector output that can be considered "efficient". Efficiency can be quantifies as the highest value of local property tax base possible given the endogenous and exogenous inputs available to a city government. If a city is not producing the highest attainable property value, ceteris paribus, then it could be considered inefficient. In this paper we attempt to measure the relative efficiency of large city governments in the U.S. through the technique of production frontier analysis. In a second stage of our empirical analysis we regress the derived measure of relative inefficiency against variables that have been proposed as causes of public production inefficiency. Our results show that large city governments are operating at different degrees of efficiency and that many of the causal hypotheses advanced in this regard are empirically valid