Identifying interactions between size effects in New South Wales local government

ABSTRACT

Size effects such as economies of scale and economies of scope can be utilised to achieve cost savings in local government systems. Numerous municipal reform policies in Australia and elsewhere have historically been premised on size effects. In this paper, we investigate whether an interaction effect exists between scale economies and scope economies in New South Wales local government using a 2011 sample of local councils. We estimate the effects of scale and specialisation on efficiency by way of a multiple regression, using a novel approach to measure specialisation. We find empirical evidence that indicates economies of scale and economies of scope are both likely to be present across a broad range of scales. However, we find no evidence of any interaction effect between scale and scope economies.

KEYWORDS:

• Local government
• scope economies
• scale economies
• multiple regression
• New South Wales

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Caillan Fellows

Caillan Fellows is a postgraduate student at the UNE Business School at the University of New England. His interests include government failure, efficiency analysis and measurement, and the econometric analysis of government more generally. Recently, he has written an article titled ‘Is bigger more efficient? An empirical analysis of scale economies in administration in South Australian local government’ for Economic Papers.

Brian Dollery

Brian Dollery is Emeritus Professor of Economics at the University of New England. He has published extensively on Australian local government and worked with numerous local councils across Australia and New Zealand. His most recent book, co-authored with H Kitchen, M McMillan and A Shah, Local Public, Fiscal and Financial Governance, Palgrave McMillan, 2020.

Rui Marques

Rui Marques is Professor of Systems and Management of Infrastructure at the IST, University of Lisbon, Portugal, where he is a research member of CERIS: Civil Engineering and Innovation for Sustainability. He also holds a research position at the University of New England. His interests include the regulation and governance of public services and the performance measurement and benchmarking of organisations.