Study reveals local council mergers depend on efficiency

Oct 29, 2013
Study reveals local council mergers depend on efficiency

Local council mergers make economic sense only if bigger councils operate more efficiently than smaller ones, according to a new study by researchers at The University of Western Australia.

The researchers said greater efficiency was not achieved by simply joining two councils with a small population.

The study, published in The Australian Economic Review, was carried out by Assistant Professor James Fogarty and Assistant Professor Amin Mugera, from UWA's School of Agricultural and Resource Economics and Institute of Agriculture.

The authors used the data envelopment analysis method to investigate efficiency and identify the contribution of scale effects to overall sector inefficiency at 98 local councils in WA in 2009 and 2010.

They found that although incorrect scale was a source of inefficiency, the source of the scale inefficiency was in some cases that local government areas were too large, while others were too small.

"Rather, economics of scale benefits are realised when an increase in the mix of different services provided by a council results in a decrease in the overall average cost of service delivery," the report said. "The average cost at each council will depend on the mix of services delivered, the unique nature of the production characteristics of each service and prevailing market conditions."

The authors concluded that a merged council serving a larger population was not necessarily able to deliver services at the minimum possible cost.

"In terms of the amalgamation debate, policies that encourage consolidation only make economic sense if larger councils tend to be more efficient than smaller councils and if merging will improve both pure technical efficiency and scale ," they said.

"The results suggest there will be a number of possible council amalgamation scenarios that meet these criteria, but also a large number of amalgamation scenarios that do not."

The researchers found significant differences between information submitted annually to the State Government and matching values contained in councils' audited financial statements.

"This lack of consistency should be a concern for all levels of government and all agencies that use this information...," they said. "The lack of consistent data also makes objective analysis of sector performance difficult."

The authors also noted a strong clustering of councils into groups of efficient and inefficient operators and suggested that some councils were likely to have implemented substantially better processes and operating practices than others. They suggested in such an environment it was valuable to provide opportunities for managers to share their experiences.

Explore further: Restricting Voting Rights Act could mean fewer African-Americans on city councils

More information: onlinelibrary.wiley.com/doi/10.1111/j.1467-8462.2013.12015.x/abstract

add to favorites email to friend print save as pdf

Related Stories

Recommended for you

Sharing = Stealing: Busting a copyright myth

Apr 11, 2014

Consumers copy and share digital files. This has been blamed for a potentially catastrophic decline in certain markets. But why do consumers copy? And is it as economically harmful as often thought?

How widespread is tax evasion?

Apr 10, 2014

Tax evasion is widely assumed to be an eternal problem for governments—but how widespread is it? For the first time, a new study, co-authored by an MIT professor, has put a cost on a particular kind of tax evasion, known ...

China looks to science and technology to fuel its economy

Apr 10, 2014

Maintaining stability in the face of rapid change and growth, and proactively partaking in cooperative global ties in science and technology fields will be key in helping China become an innovation-based economy, according ...

User comments : 0

More news stories

Online reviews: When do negative opinions boost sales?

When purchasing items online, reading customer reviews is a convenient way to get a real-world account of other people's opinions of the product. According to a new study in the Journal of Consumer Research, negative review ...

Low Vitamin D may not be a culprit in menopause symptoms

A new study from the Women's Health Initiative (WHI) shows no significant connection between vitamin D levels and menopause symptoms. The study was published online today in Menopause, the journal of The North American Menopa ...

Astronomers: 'Tilt-a-worlds' could harbor life

A fluctuating tilt in a planet's orbit does not preclude the possibility of life, according to new research by astronomers at the University of Washington, Utah's Weber State University and NASA. In fact, ...