Economic efficiency in the production of low-volume rural roads: An application of radial measures of efficienc

The principle objectives of this study were twofold: first was the examination of the ability of rural local governments to produce a public good in an economically efficient manner, and the second was to compare and contrast alternative empirical methods used to obtain efficiency measures. The principle policy option examined was jurisdictional consolidation as a method to enhance production efficiency and reduce long-run costs.;Farrell type measures of efficiency are both estimated, using parametric statistical methods, and computed using nonparametric mathematical programming methods, for a cross-section of observations for a sample of townships from three Midwestern states: Illinois, Minnesota and Wisconsin. A total of 446 observations are employed in this research. The data are available from a mail survey of township officials, the Census of Governments and engineering cost studies.;By dividing cost minima, obtained from the reference set, by observed cost, an overall measure of input use efficiency was obtained. For the typical township in the sample the overall measure of input use efficiency was.3488 from the nonparametric method and.3839 from the parametric method. These measures suggest that over 60 percent of the cost of producing low-volume rural roads may be unnecessarily incurred because of input use patterns inconsistent with cost minimization. A simple regression model projecting road mileage onto the efficiency measures suggest that the two empirical methods produced contradictory evidence on the jurisdictional consolidation policy option.;An additional source of economic inefficiency examined and reported centers on the concept of returns to size. Results of the nonparametric method suggest that current costs could be reduced by 30 percent if output levels were altered to coincide with levels consistent with the minimum of the long-run average cost curve. Both methods identified over 80 percent of the total sample as exhibiting output levels consistent with increasing returns to size. These results supports the policy option of consolidation of jurisdictional responsibilities in the production of low-volume rural roads.;The extent of the economic inefficiencies identified in this research may be viewed as lower bounds on the degree of inefficiency. The data used in this analysis was not collected with the study of economic efficiency in mind. Future research should be based on data collected with the study of economic efficiency in mind.