Cost efficiency of basic service provision in 353 Finnish municipalities in 1994-2002 is analysed. The paper gives a thorough overview of public service provision and its evaluation in general, and of the circumstances in Finland during the period 1994-2002. Both application and results of Data Envelopment Analysis (DEA) are described and discussed in detail. Several methodological improvements are suggested.

The Finnish government and its working groups are planning to reform the basic service provision system.

First, Data Envelopment Analysis (DEA), was employed in calculating efficiency scores for municipalities. In DEA the outputs consisted of six to ten volume indicators of services in health, social and educational sector. As the combined input, costs of providing these services were used.

As the second stage, the DEA efficiency scores were explained with regression models.

According to Data Envelopment Analysis, there were considerable cost efficiency differences between the municipalities, and they remained fairly stable over time. The most efficient municipalities were rather small and mostly located in Southern Finland, while the least efficient ones were in the peripheral Northern parts of the country. The biggest cities showed rather varying performance.

Regression models show that peripheral location, high income level (high wages), large population, high unemployment, diverse service structure and big share of services bought from other municipalities tended to reduce efficiency of municipal service provision. Big share of municipal workers in age group 35-49 years, dense urban structure, big share of services bought from private sector and high education level of inhabitants tended to increase efficiency.

University of Helsinki, Department of Geography
Mr. Heikki A. Loikkanen, tel. +358 9 191 28722

City of Helsinki Urban Facts
Mr. Ilkka Susiluoto, tel. +358 9 169 3688

07/11/2005

Heikki A. Loikkanen and Ilkka Susiluoto.

research

Urban Policy > Social inclusion & integration > Quality of life

Social services