Measuring the efficiency of public services: the limits of analysis

Policy makers are increasingly seeking to develop overall measures of the efficiency of public service organisations. To that end, the use ‘off-the-shelf’ statistical tools such as data envelopment analysis (DEA) and stochastic frontier analysis (SFA) have been advocated as tools to measure organisational efficiency. The analytical sophistication of such methods has reached an advanced stage of development. In this paper we discuss the context within which such models are deployed, their underlying assumptions, and their usefulness for a regulator of public services. Four specific model building issues are discussed: the weights attached to public service outputs; the specification of the statistical model; the treatment of environmental influences on performance; and the treatment of dynamic effects. The paper concludes with recommendations for policy makers and researchers on the development and use of efficiency measurement techniques.