0 Голоса «за»0 Голоса «против»

Просмотров: 027 стр.Jun 19, 2017

© © All Rights Reserved

PDF, TXT или читайте онлайн в Scribd

© All Rights Reserved

Просмотров: 0

© All Rights Reserved

- Calibration by Linear Regression - Tutorial
- US Federal Reserve: ifdp567
- Capital market imperfection and corporate investment: Nepalese evidence
- Treynor Black Illustration
- rq_ch6.pdf
- gen4
- Analysing Plant Trails by Comparing Recovery-grade Regression Lines
- OLS (1)
- A Thomas Hand Out
- 1.Man-challenges in Service Delivery Within the-peter Kiprotich Cheruiyot 123
- chapter 08 part 2
- linear regression - macro.pdf
- Exact Inference
- Heckman Selection Models
- 10.2307
- longitudinal.pdf
- ExamplesR Power Law
- DIFFERENCES IN PERCEPTION OF MARKETING MIX, SATISFACTION, AND LOYALTY AMONG REGIONAL AND SHARIA BANKS CUSTOMERS.
- Regression 1 SimpleLinearModel
- ProductionCobbDouglasFct.empvalid.fraser

Вы находитесь на странице: 1из 27

Environment: The Case of Public

Services in Brazilian Municipalities*

Maria da Conceicao Sampaio de Sousa**

Francisco Cribari-Neto***

Borko D. Stosic****

Abstract

We estimate DEA (Data Envelopment Analysis) technical efficiency scores for nearly

five thousand Brazilian municipalities using a recently proposed method that combines

bootstrap and jackknife resampling to eliminate the influence of outliers and possible

measurement and recording errors in the data. We use both the constant and variable

returns to scale variants of the DEA method. After computing the efficiency scores, we

use econometric methods to investigate the determinants of those scores. The results

reveal that: (a) the level of computer usage (a proxy for administrative capability) tends

to have a positive and highly significant impact on efficiency; such gains seem to be

greater for the most inefficient municipalities, thus indicating the existence of diminishing

marginal benefits; (b) the urbanization rate is also shown to be positively correlated with

the efficiency measures; (c) excess spending due to royalty revenues and economies of

scale seem to explain why efficiency scores increase with the size of the municipality; (d)

municipalities which take part in the Alvorada Program (a federal program for low income

communities) tend to display higher efficiency scores than those they would have achieved

had they not been included in the project. Additionally, the results show that the more

power awarded to municipal councils, the better the effectiveness in resource utilization

as measured by efficiency indices. This is because such councils tend to increase the

transparency of the budgeting process, hence reducing corruption and the misuse of local

funds.

Keywords: Data Envelopment Analysis, Nonparametric Frontiers, Local Public Services.

JEL Codes: C5, C6, H4, H7.

** Departamento de Economia, Universidade de Braslia, Campus Universitario Darcy Ribeiro

s/n, Braslia-DF, 70910-900. E-mail: mcss@unb.br.

*** Departamento de Estatstica, CCEN; Universidade Federal de Pernambuco, Cidade Univer-

**** Departamento de Estatstica e Informatica, Universidade Federal Rural de Pernambuco,

Rua D. Manoel de Medeiros s/n, Dois Irmaos, Recife PE, 52171-900. E-mail: borko@ufpe.br.

v. 25, no 2, pp. 287313 November 2005

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

1. Introduction

Sampaio de Sousa and Ramos de Souza (1999a,b) used nonparametric tech-

niques, DEA (Data Envelopment Analysis) and FDH (Free Disposal Hull), to

measure the level of technical efficiency of Brazilian municipalities. Their work al-

lowed to evaluate the performance of the Brazilian cities and provided instruments

that can be used for evaluating local governments. Yet, we should emphasize the

exploratory nature of those works. Besides the data limitations, the computed

indicators should be carefully used, as the inefficiencies found are not explained

only by managerial incompetence or by the inexistence of satisfactory incentive

schemes to assure an adequate functioning of the communities. Due to the deter-

ministic nature of nonparametric models, they consider that all the observations

are feasible with probability one. Inefficiencies due to the presence of atypical

observations, measurement errors, omitted variables, and other statistical discrep-

ancies are not taken into account. Notice that these approaches do not specify

a particular form for the production frontier. Consequently, there is no formal

description of the uncertainty and noise associated with the observed DMUs (De-

cision Making Units).

Additionally, data heterogeneity in DEA methods may aggravate this problem

and lead to substantial underestimation of efficiency scores since the frontier is

achieved by a small number of municipalities. This problem should not be over-

looked, especially when the dataset is both huge and diverse, as is the case of

the data on Brazilian municipalities. Here, the size and heterogeneity of the sam-

ple makes it virtually impossible to manually detect outliers and/or measurement

errors, thus requiring the use of an automated approach. Therefore, to make effi-

ciency scores credible it is necessary to use an adequate procedure to correct those

indices for outliers. Only then, one may hope to obtain reliable estimates, which

could be useful for policymakers.

The inefficiencies may also be due to the existence of exogenous factors that

are out of the control of the municipalities, such as natural and climatic condi-

tions, political factors, demographic and socioeconomic features, etc., which have

not been taken into account in the preceding nonparametric analysis. The impor-

tance of those aspects has been pointed out by several authors, who used different

techniques to separate out the influence of those factors from the ones associated

with productive efficiency and thus get a pure measure of technical efficiency

(see Lovell et al. (1994), Kalirajan (1990), McCarty and Yaisawarng (1993) and

Yu (1998)). The key issue here is to identify the conditioning factors underlying

the efficiency scores.

In this paper we estimate efficiency indices for Brazilian municipalities by using

bootstrap and jackknife resampling in a combined fashion to reduce the influence

of outliers and possible errors in the dataset. Both the constant and variable

returns to scale variants of the DEA method are considered. After computing

the efficiency scores we use econometric methods (including quantile regression)

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

The paper unfolds as follows. Section 2 presents the methodology used to com-

pute the outliers-corrected DEA efficiency scores. Section 3 briefly describes the

data and the choice of the indicators used as proxies for the supply of local public

services. Section 4 discusses the nonparametric efficiency estimates obtained. Sec-

tion 5 presents the econometric results of the analysis of the conditional factors

underlying those scores. Finally, Section 6 summarizes the main conclusions.

Nonparametric deterministic approaches to efficiency measurements are char-

acterized by the use of very weak assumptions concerning the production technol-

ogy. Except for the usual regularity axioms, such as the boundedness and closed-

ness of the technology, those methods rely on very simple assumptions, such as

convexity and strong free disposability in inputs and outputs. In particular, this is

true for linear programming based techniques, known as DEA (Data Envelopment

Analysis).1

For each decision making unit (DMU), technology transforms nonnegative in-

puts xk = (xk1 , ..., xkN ) RN k M

+ into nonnegative outputs y = (yk1 , ..., ykM ) R+ .

For input-based measures of technical efficiency technology is represented by its

production possibility set T = {(x, y) : x can produce y}, the set of all feasible

input-output vectors.

The input correspondence for the DEA reference technology, characterized by

constant returns to scale (C) and strong disposability of inputs (S), defines a piece-

wise linear technology constructed on the basis of observed input-output combi-

nations:

L (y|C, S) = x : y zM, zN x, z RK M

+ , y R+ (1)

in the dataset, N is the kxn matrix of observed inputs and z is the 1 x k vector

of intensity parameters.2 For each activity, the technical efficiency on inputs, Fi ,

may be defined, as:

(2)

This radial efficiency measure always lies between zero and one. The efficient

production on the isoquant has unit efficiency score. Thus, 1 represents the

proportion in which the inputs could be reduced without changing production. By

1 See Charnes et al. (1978), Banker et al. (1984), and Fare et al. (1985, 1994).

2 For a more detailed analysis, see Fare et al. (1994).

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

using the technology specified in (1), technical efficiency (input-oriented) for the

municipality k may be computed as the solution of the following linear program:

k = min()

subject to:

K

X

xkn zkj xjn n = 1, , N

j=1

XK

ykm zkj yjm m = 1, , M

j=1

, zkj 0 j = 1, , K (3)

This version of the DEA methodology known as the CCR model (Charnes et al.,

1978) implies strong restrictions concerning the production set, in particular

constant returns to scale. This assumption can be easily relaxed by modifying the

restrictions on the intensity vector z. For example, Fare et al. (1985, 1994) have

extended this technique to include the existence of non-increasing returns to scale

by adding the following restriction to (1):

K

X

zkj 1 j = 1, , K ; k = 1, , K (4)

j=1

Here, the sum of the intensity variables cannot exceed unity, implying that the

different activities can be contracted but cannot be expanded to infinity. In the

case of variable returns to scale the BCC Banker et al. (1984) model activities

cannot be expanded radially without limits, nor contracted to the origin. We

have, thus, increasing returns for low levels of production and decreasing returns

for higher levels. It is well known that the efficiency indices associated with this

technology henceforth called DEA-BCC are obtained by imposing equality on

restriction (4).

As previously mentioned, one of the main drawbacks of DEA is that the re-

sulting efficiency scores are rather sensitive to the presence of DMUs that perform

extremely well (the so called outliers), which may stem from outstanding practice

or may simply be the result of errors in the data. In either case, the results for

the remaining DMUs become shifted towards lower efficiency levels, the efficiency

frequency distribution becomes highly asymmetric, and the overall efficiency scale

becomes nonlinear. Several authors have considered this effect. Wilson (1993,

1995) introduced descriptive methods to detect influential observations in nonpara-

metric efficiency calculations. Seaver and Triantis (1992, 1995) proposed the fuzzy

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

clustering strategy and high breakdown procedures to deal with outliers and lever-

age points. The fuzzy clustering strategy merges the traditional data envelopment

analysis framework with concepts developed in fuzzy parametric programming,

while the high breakdown robust method is used in conjunction with robust dis-

tance measures to detect outliers and leverage points. Within the super-efficiency

model (Andersen and Petersen, 1993), the efficient unit can receive a score greater

than one, through the units exclusion from the column being scored in the linear

program. Although this method was conceived to rank efficient units, its use was

extended to include outlier detection. More recent developments of this important

issue include the order-m frontiers (Simar, 2003, Cazals et al., 2002) and the Ro-

bust Efficiency Frontier (Kuosmanen and Post, 1999, Cherchye et al., 2000). The

order-m approach, based on the concept of expected minimum input function (or

maximal output function), yields frontiers of varying degrees of robustness. It was

applied to the FDH estimator and thus shares its statistical properties. Robust

Efficiency Measurement (REM) decomposes the original DEA set into different

nested reference sets and efficiency is thus measured relative to these sets. Both

the order-m frontiers and the REM measurements allow for statistical inference

while keeping its nonparametric nature.

Yet, the proposed approaches are heavily dependent on manual inspection of

data, which becomes virtually impossible for large datasets, like the one in use

here. To tackle this issue, we shall use a method recently proposed by Stosic

and Sampaio de Souza (2003), which is based on a combination of bootstrap and

jackknife resampling schemes, for automatic detection of outliers. This approach

is based on the concept of leverage, that is, the effect produced on the outcome

of DEA efficiencies of all the other DMUs when the observed DMU is removed

from the dataset (see Cribari-Neto and Zarkos (2004)). The leverage measure is

calculated for each DMU, and it is then used to detect outliers and errors in the

dataset, and to eliminate them in an automated fashion, or to just reduce their

influence. The underlying idea is that outliers are expected to display leverage

much above the mean leverage, and hence should be selected with lower probability

than the other DMUs when resampling is performed.

The leverage of a single observed DMU might be understood as the quan-

tity that measures the impact of the removal of the DMU from the dataset on

the efficiency scores of all the other DMUs. Formally, it may be defined as the

standard deviation of the efficiency measures before and after that removal. The

most straightforward possibility is to use jackknife resampling as follows. One

first applies DEA to each of the DMUs using the unaltered, original dataset to

obtain the set of efficiencies {k |k = 1, . . . , K}. Then, one by one, each DMU

is successively removed from the dataset, and each time the set of efficiencies

{kj |k = 1, . . . , K : k 6= j} is recalculated, where j = 1, . . . , K indexes the re-

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

moved DMU. The leverage of the j-th DMU may then be defined as

v

uP 2

u K

t k=1;k6=j kj k

j = (5)

K 1

sive, and may prove unfeasible for very large datasets. More precisely, removing

each of the K DMUs from the dataset and then performing (K 1) DEA cal-

culations requires solving K(K 1) linear programming problems, which may

become prohibitively expensive for large K. We therefore proposed a more effi-

cient stochastic procedure, which combines bootstrap resampling with the above

jackknife scheme as follows:

above procedure to obtain subset leverages k1 , where the index k takes on

L (randomly selected) values from the set {1, . . . , K}.

2. Repeat the above step B times, accumulating the subset leverage information

kb for all randomly selected DMUs (for B large enough, each DMU should

be selected roughly nk BL|K times).

Pnk

b=1 kb

k =

nk

and the global mean leverage as

PK

k=1 k

=

K

This completes the first phase of the proposed approach. In the second phase,

one can either use the leverage measures to detect and simply eliminate outliers

from the dataset, or one can implement a bootstrap method to produce confidence

intervals and bias information, using leverage information to reduce the probability

of selecting the identified outliers in the stochastic resampling process.

The point here is how leverage information can be used to identify potential

outliers (and/or errors). More precisely, after ordering the DMUs according to

their leverage values such that i j for i < j, a choice should be made as to

what threshold leverage value 0 should be used to warn of potential influential

DMUs. One possibility for making this choice is to systematically remove, one

by one, the most influential DMUs (with the largest leverage), and compare the

resulting successive empirical efficiency distributions. The effect of removal of the

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

high leverage DMUs on the efficiency distributions may then be used to extract the

threshold value. We may, for instance, apply the Kolmogorov-Smirnov test (K S)

to quantify the difference between the efficiency distributions before and after the

removal of the m-th influential DMU. By plotting the results of the K S test as

a function of the number m of removed influential DMUs, one can then observe

the point m0 after which there is no more significant difference between the two

groups, and choose for the corresponding leverage value for the threshold. This

approach, however, is extremely computationally intensive, and may be difficult

to implement for very large datasets. As an alternative, one may use the multiple

of the global mean leverage 0 = c (as a rule of thumb, setting c = 2 or 3) for the

threshold, or by taking into account the sample size K, one may use the product

0 = log K. In this paper, we used a variant of this rule, the Heaviside step

function, given by

1, k < log K

P k = (6)

0, K log K

In what follows, the threshold level log K was chosen in order to take into account

the sample size, so that, e.g., for K = 1000 a DMU with leverage greater than

three times the global mean is rejected. Of course, as any cutoff level, this is

somehow arbitrary, but it proved to be, by our experience, a quite robust rule.3

3. Data

The implementation of the methods presented above requires information on

aggregate total costs and other relevant inputs, as well as information on the

amount of public services available to the population of the municipalities (out-

puts). Initially, data for 5,264 Brazilian municipalities were collected. We ex-

cluded from the sample municipalities for which key information was missing; 620

observations were dropped since 493 of them had a recorded population of zero

inhabitants and 127 others had no data on current expenditure.4 The final dataset

contained 4,796 municipalities. The data are for the year 2000.

A list of inputs and outputs is provided in Table 1, together with their respec-

tive sources, and the public service they are supposed to represent. The choice

of the variables followed two criteria: relevance and data availability. Concerning

the inputs used, aggregate total costs were computed as the value of municipal

3 For a more detailed discussion on the impact of selecting different cutoff rules in a controlled

4 The reason for this lies in the increased creation of new municipalities in Brazil. Indeed,

some municipalities, although legally created, have not yet been administratively separated from

their communes. As a result, they do not report output indicators. In addition, null values for

current expenses may be also explained by the fact that the data have not yet been reported by

the STN (National Treasury Secretariat).

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

current spending. The other inputs used were the number of teachers (as a proxy

for personnel inputs), the number of hospital and health centers, as they are the

main providers of health services. The rate of infant mortality stands as an input

because when health services are efficient, this indicator is expected to be as low

as possible.5

As for output measures, due to the impossibility of directly quantifying the

supply of public services, they were approximated by a set of selected indicators,

which are observable factors taken as proxies for the services supplied. Admin-

istrative, educational, health and housing conditions account for roughly 80% of

the budget of the Brazilian municipalities. After a careful choice, nine output

indicators were retained. Total resident population stands as a proxy for the var-

ious administrative tasks performed by the municipalities. This variable is also

supposed to account for other services for which proxies are not available, eg.

crime control provided by the communes. As crime incidence (and crime control)

is mainly a phenomenon of relatively big cities, the inclusion of the population

indirectly allows to take the provision of those services into account.

Regarding the educational variables, the variables used stand not only for the

quantitative aspects of the schooling system, but are also supposed to account for

some of its qualitative aspects. The motivation of choosing schooling variables

enrollment, attendance, promotion to the next grade and student in the proper

grade come from the fact that they are supposed to reflect the main problems of

the education system in Brazil. Firstly, municipalities have to encourage students

to enroll, as the law that compels students up to 14 years old to attend school is

not enforced. After that, the students should stay in school and get promoted to

the next grade, as the incidence of dropout and repetition rates are very high in

Brazil. Finally, due to those higher repetition rates, many students are not in an

age-appropriate grade level, thus creating a distortion on the learning process.

5 When defining inputs and outputs, if two DMUs differ in only one of the variables, and if

DMU A has a larger value for this variable than DMU B, then the variable is classified as an

output if A is (intuitively) more efficient than B, and as an input if A should be considered less

efficient than B. In this sense, if A has larger child mortality than B (and they have equal values

for all the other variables), then A is less efficient than B, and consequently child mortality is an

input variable (one would like to decrease this variable in order to make it more efficient). This

approach is somewhat controversial from the standpoint that child mortality is in fact the result

of the practice (in particular if one identifies result with output). Using the reciprocal of

child mortality as an output is an alternative, but it does violate linear scaling of this variable

(where zero mortality would lead to an infinite output value).

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

Table 1

Input and output indicators and the corresponding municipal services 2001

indicators serve as proxies

- Input indicators

1

Current spending STN1 Aggregate total costs

2

Number of teachers Censo Escolar/MEC Personnel input

3 2

Rate of infant mortality IBGE Public health services

4

Hospital and health services IBGE Public health services

- Output indicators

1.Total resident population IBGE Administrative services

2. Literate population MEC3 Educational services

3. Enrollment4 per school Censo Escolar/MEC Educational services

4. Student attendance per school Censo Escolar/MEC Educational services

5. Students who get promoted to Censo Escolar/MEC Educational services

the next grade per school

6. Students in the appropriate Censo Escolar/MEC Educational services

grade per school

7. Households with access IBGE Health and housing

to safe water conditions

8. Households with access IBGE Health and housing

to sewage system conditions

9. Households with access IBGE Health and housing

to garbage collection conditions

Sources: 1 STN - Secretaria do Tesouro Nacional (National Treasury Secretariat);

2 IBGE - Brazilian Institute of Geography and Statistics, 1991 Census;

3

MEC - Brazilian Ministry of Education;

4

All data refer to primary and secondary municipal schools.

Figures 1 and 2 display the histograms of the efficiency measures computed for

the Brazilian municipalities in the sample, by using the CCR and BCC methods, as

well as nonparametric kernel estimates (solid line) of the densities of the efficiency

scores (using Gaussian kernels). The scores are restricted to the standard interval,

i.e., they assume values between zero and one. Note that the distribution of

those measures is approximately symmetric, with a high concentration around the

average.

We shall first discuss the CCR results. The mean of all scores is 0.5222, the

median is 0.5031, and the standard deviation is 0.1757; the first and the third

quartiles are 0.3952 and 0.6257, respectively. The symmetry of the distribution is

shown by the closeness between the mean and the median. The municipality with

the lowest score (0.0946) is Sao Felix do Coribe, located in the state of Bahia. Only

85 municipalities form the efficiency frontier. Concerning the DEA-BCC estimates

(variable returns to scale), the dataset includes 4,755 municipalities. Input and

output variables are the same ones used in the CCR model. Here the mean and

median scores are 0.5249 and 0.5073, respectively, and the minimum and maximum

scores are 0.0774 and 1. The standard deviation is 0.1652 and the first and third

quartiles are, respectively, 0.4093 and 0.6198. Only 79 municipalities (1.66% of all

observations) are on the frontier.

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

2 .5

2 .0

1 .5

1 .0

0 .5

0 .0

0 .2 0 .4 0 .6 0 .8 1 .0

Figure 1

Histogram of the efficiency measures (CCR method). The solid line is a nonparametric

kernel estimate of the true density

2.

5

2.

0

1.

5

1.

0

0.

5

0.

0

0.2 0.4 0.6 0.8 1.0

Figure 2

Histogram of the efficiency measures (BCC method). The solid line is a nonparametric

kernel estimate of the true density

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

Table 2 contains descriptive statistics for the computed efficiency scores, for

each Brazilian region. For the CCR estimates, all regions have efficient units. In-

deed, out of the 85 units classified as efficient, 6 are in the North, 19 are in the

Northeast, 4 are in the Midwest, and 46 are in the Southeast (from those, 32 are

located in the state of Sao Paulo). Thus, more than half of the efficient munici-

palities are located in the Southeast region, and this region also has the highest

average efficiency score, although it also displays the second smallest minimum

score.

Table 2

Summary of the DEA efficiency measures per region CCR and BCC

DEA-CCR DEA-BCC

Region Mean Median Minimum Maximum Mean Median Minimum Maximum

North 0.5134 0.5014 0.1602 1.0000 0.5270 0.5090 0.1675 1.0000

Northeast 0.5051 0.4882 0.0947 1.0000 0.5220 0.5071 0.0774 1.0000

Midwest 0.5266 0.4977 0.1862 1.0000 0.5113 0.4921 0.1605 1.0000

Southeast 0.5554 0.5313 0.1222 1.0000 0.5460 0.5282 0.1085 1.0000

South 0.5056 0.4886 0.1497 1.0000 0.5052 0.4911 0.1727 1.0000

For the BCC variant, the geographical distribution of the 79 efficient munic-

ipalities is the following: 6 are located in the North region, 21 are found in the

Northeast region, 4 are situated in the Midwest, 38 are in the Southeast region,

and 10 belong to the South region. The state of Sao Paulo alone has 26 efficient

units, nearly one third of the total number of efficient municipalities.

Econometric Analysis

We shall now turn to the estimation of regression models that aim at identi-

fying the factors that explain the variability of the computed efficiency scores for

Brazilian municipalities. The dependent variable (EFIC) is the DEA efficiency

measure. The explanatory variables describe relevant characteristics of the mu-

nicipalities considered. Note that the estimated coefficients are conditional on the

values obtained by the DEA scores and thus they do not take into account the

uncertainty associated with those scores.6

Let n be the number of municipalities, = (1 , . . . , n ) the vector of efficiency

scores, X a matrix of dimension n p, containing the municipality characteristics,

a p-dimensional vector of unknown parameters and u an n-dimensional vector

of random errors. We can write a regression model as

t = f (xt ; ) + ut , t = 1, , n

6 Fernandez et al. (2000).

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

Here, xt denotes the p-dimensional vector of the characteristics of the t-th munic-

ipality. As we do not have a priori information about the functional form of f ,

its is common practice to assume linearity:

= X + u

Since the efficiency scores are restricted to assume values within the standard unit

interval (0 < 1), the ordinary least squared (OLS) estimator of the vector of

regression parameters will be inconsistent in the sense that it will not converge

on probability to the true unknown parameter. However, it has been shown in

the literature that the use of log() as dependent variable leads to consistent and

unbiased OLS estimates if the computed scores only assume strictly positive values.

Furthermore, when the dependent variable is censored, as is the case with our

scores, the OLS estimator of the linear regression parameters will not be consistent

and such inconsistency worsens with the proportion of censored observations in the

sample. A proof of this result, under some regularity conditions, is given in Greene

(1981). This result implies that the problem of inconsistency will not be serious

when the number of censored observations is small.

Censored observations may be appropriately tackled using the Tobit model.

In this model, parameters are usually estimated by maximum likelihood (ML)

under the assumptions of normality and homoskedasticity. It is noteworthy that

the absence of normality as well as the presence of heteroskedasticity will lead to

inconsistent parameter estimates.

Another important aspect of modeling in classical or Tobit regression, in our

particular case, is the possibility of existence of spatial effects due to the existence

of some functional relationship between the municipal efficiency structures in two

distinct points in space. The smaller the area where those points are located, the

higher the probability of geographical correlation. Anselin (1988) proposed the

following model to explicitly consider the spatial dependency:

(I W ) = X + e = W + X + e, with e = W e + u

where I is the identity matrix and W is an n n matrix that controls for the

existence of neighborhood effects. Here, the parameter measures the spatial

correlation that, if different from zero, implies that the computed efficiency score

of a given municipality is directly affected by the scores of its neighbors. The

parameter captures the spatial correlation between the errors and u is a new

error term.7 As the specified model is the semi-log, we used ln as the dependent

variable:

ln = W + X + e

Here we will use two forms for the W matrix: first, the element (i, j) from W will be

one if municipalities i and j are neighbors and zero otherwise, neighborhood being

7 Notice that there is no direct interest in the estimation of and .

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

the element (i, j) from W will be equal to the distance between municipalities i

and j divided by the maximum distance encountered; hence, we have a measure

between zero and one for all pairs of localities and not only a binary measure of

neighborhood.

As the municipalities differ significantly in various aspects, it is reasonable

to expect that their associated regression errors also display different variances.

Thus, when estimating the parameters we should take into account the existence

of heteroskedasticity.

In what follows, we shall use the linear regression model instead of the Tobit

model. The reasons for that choice are as follows.

1. Contrary to the Tobit model, estimation in the linear model does not require

the assumption of normality; this assumption can be quite restrictive since

we have no prior information about the distribution of the data. As pointed

out by a referee, it is possible to define the Tobit model using nonnormal

distributions. However, the main shortcoming remains: distributional mis-

specification will result in unreliable inference.

2. The OLS estimator in the linear regression model is unbiased, consistent and

asymptotically normal even under neglected heteroskedasticity of unknown

form; the same does not hold for the ML estimator in the Tobit model.

3. It is possible to obtain an estimate for the covariance matrix of the OLS esti-

mator of that is consistent under both homoskedasticity and heteroskedas-

ticity of unknown form (see below); hence, one can perform hypothesis tests

that are asymptotically valid regardless of the structure of the error vari-

ances and of the error distribution. These convenient properties do not hold

in the Tobit framework.

4. The proportion of censored observations in the sample is small (around

1.8%).

As for the covariance matrix of the OLS estimator of the parameter (point 3

above), different estimators can be found in the literature. White (1980) proposed

a consistent estimator, which is commonly used in empirical work and is known

as HC0. This estimator is given by

1 1

(X X) X X (X X)

the OLS residuals. Monte Carlo simulations have shown that this estimator tends

to lead to associated tests that are considerably liberal, in the sense that their

true size is typically substantially greater than the selected significance level (see

Cribari-Neto (2004), Long and Ervin (2000), and MacKinnon and White (1985)).

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

Other covariance matrix estimators are available. The HC3 estimator, for in-

stance, is obtained by defining the t-th diagonal element of not as u2t , but as

u2t /(1 ht )2 , where ht is the t-th diagonal element of the hat matrix, H =

X(X X)1 . Since ht is a measure of the degree of leverage associated with ob-

servation t, this estimator includes a correction for the different levels of leverage

of the different observations. Simulation results have shown that this estimator

leads to more precise inferences than the White estimator (HC0) and several of its

other variants (see Davidson and MacKinnon (1993) and Long and Ervin (2000)).

Cribari-Neto (2004) proposed the HC4 estimator, where the square of the t-th

residual in is divided by (1 ht )t , with t = min(4, nht /p). Numerical results

show that quasi-t tests whose statistics use this estimator typically display smaller

size distortions relative to alternative tests. Indeed, those results show that the

performance of the test based on HC4 is similar to that of a test based on a double

bootstrap resampling scheme, the latter being highly computationally intensive.

Finally, this typical two-step procedure used to explain efficiency is flawed, as

the efficiency scores may be seriously correlated in an unknown way. This is a

known problem. Yet, only a few studies recognized this problem in the second-

stage regression (see for instance Hirschberg and Lloyd (2002), Xue and Harker

(2002)). In such cases, the proposed correction is to apply bootstrap techniques

in order to correct the estimates and improve inference. Yet, this is still a frontier

line of research. There is not even agreement on how to bootstrap the estimates.

The above mentioned studies used a naive bootstrap proposed by Ferrier and

Hirschberg (1997), but this method has been shown to be inconsistent (Simar

and Wilson, 2000). Further developments of this approach (Simar, 2003) have

shown that the bias is more severe when the Tobit model is used. Besides, the

aforementioned procedures have so far used a controlled environment and have

not yet been applied to huge databases such as ours. Nonetheless, we point out

that any finite sample bias in the procedure we employed in the current paper is

likely to vanish as the sample size grows, provided that the correlations decrease

as the number of observations increases, as expected. The parameter estimates

thus remain consistent and asymptotically unbiased. Note that our sample size is

large enough for the asymptotics to kick in, and as a result any bias left will be of

second order.

The dependent variables correspond to the natural logarithms of the efficiency

scores for 4,755 Brazilian municipalities computed using the DEA-CCR and DEA-

BCC variants. In the first formulation we have tried to include most of the munic-

ipalities characteristics as covariates, except for those that were almost certainly

collinear. Some of these variables are of the dummy type, i.e., they equal one when

the associated characteristic is present, and zero otherwise. The second model was

estimated considering only the regressors that proved to be statistically significant.

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

In both models, the results were obtained using the linear regression model, the

parameters were estimated by ordinary least squares and their standard errors

were computed using the HC3 estimator. Table 3 presents the explanatory vari-

ables as well as the econometric results for the two models for both DEA measures.

In what follows, the results are grouped according to the identified effects.

Spatial and localization effects: The results in Table 3 suggest the relevance

of the neighborhood effect in the spatial distribution of the efficiency scores.

Indeed, in all four models considered, we found positive spatial correlation,

thus indicating that higher efficiency levels tend to spread out, at least, par-

tially, to the surrounding localities, in some sort of demonstration effect.

As for the location aspects, there is a clear efficiency premium for state

capitals, since those cities tend to present higher scores relative to other lo-

calities with similar characteristics. The same effect was not found for the

metropolitan areas, hence indicating that this somehow privileged loca-

tion does not influence the computed efficiency. Finally, as expected, the

municipalities located in the drought areas (Polgono da Seca) are likely to

be less efficient than their counterparts in more clement areas, thus showing

that those municipalities, assailed by adverse climatic conditions, have more

difficulty providing the required public services to their population.

Socio-economic impacts: The income level and the poverty proxy (variables

E3 and E4, respectively) were statistically significant only when the effi-

ciency scores were estimated using the DEA-BCC variant; surprisingly, for

both variables, the sign of the effects were reversed. Hence, the fact that a

municipality is relatively impoverished does not imply per se poor resource

management. In spite of their low-income population, those communities

can rationally use their resources, thus overcoming their disadvantaged back-

ground. Furthermore, among the very poor municipalities, those taking part

in the Alvorada Program, when we control for other factors, tend to be more

efficient; probably, the monitoring required by this program contributes to

increasing the efficient use of scarce resources, thus signaling that a better

management could be a by-product of the Alvorada Program.

Finally, the municipalities that receive substantial royalty revenues (on oil and

water) tend to be less efficient than they would be otherwise; although their per

capita spending levels are very high, suggesting that they adjust expenses to their

extra revenues, the increased expenditures are not translated into more and better

public services, thus explaining why those over-financed communes have low ef-

ficiency scores. Rather than encouraging better resource allocation, the additional

royalty revenues seem instead to contribute to a relaxation of fiscal constraints and

to increased inefficiency. In short, our results clearly show that there is no direct

relationship between higher revenues (public and/or private) and better quality of

life, as measured by the access to public services.

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

Table 3

Determinants of the DEA-CCR and DEA-BCC efficiency scores in Brazilian

municipalities 2000

Explanatory variables Dependent variables: efficiency scores

DEA-CCR DEA-BCC

Model 1 Model 2 Model 1 Model 2

Intercept 1.027e+00 -1.048e+00 -9.515e-01 -9.681e-01

( 2e-16 ***) (2e-16***) (2e-16***)

W1EFIC - spatial correlation 3.890e-02 3.826e-02 3.593e-02 3.592e-02

(1.44e-14) (2.21e-14)*** (3.11e-12***) (2.87e-12***)

E1: Personnel expenses 8.151e-11 - 9.881e-11 -

(0.572003) (0.202621)

E3: % of households whose 1.128e-11 - 2.059e-03 2.085e-03

head earns up to 1 (0.096386) (0.001860**) (0.001514**)

minimum wage

E4: Average earnings -6.412e-05 - -1.114e-04 -1.045e-04

(2000 R$) (0.074784) (0.005050**) (0.005057**)

E6: PFL -2.867e-02 - -2.124e-02 -

(0.091841) (0.186083)

E7: PMDB 5.323e-02 -3.879e-02 -4.948e-02 -3.824e-02

(0.001302**) (0.000319***) (0.001274**) (0.000227***)

E8: PSD -1.793e-02 - -1.558e-02 -

(0.300360) (0.332390)

E9: PT -6.348e-04 - 4.861e-03 -

(0.981914) (0.844203)

E10: PPS -5.602e-03 - -1.133e-02 -

(0.849177) (0.670685)

E11: PPB -3.011e-02 - -2.364e-02 -

(0.116842) (0.188640)

E12: PTB 2.240e-02 - 1.951e-02 -

(0.300085) (0.331447)

E13: PDT -6.848e-02 -5.642e-02 -7.211e-02 -6.068e-02

(0.004200**) (0.005380**) (0.002353**) (0.003302**)

E16: Updating of the -1.033e-01 -1.010e-01 -1.117e-01 -1.123e-01

real estate register (0.005597**) (0.006705) (0.001238**) (0.001130**)

E17: Participation in -6.188e-02 -6.144e-02 -5.175e-02 -5.189e-02

intermunicipal consortia (2.79e-10***) (98e-10***) (7.39e-08***) (6.11e-08***)

E18: Level of computer 8.292e-02 7.746e-02 6.235e-02 6.321e-02

utilization (2.50e-14***) (3.36e-13***) (4.48e-09***) (2.53e-09***)

E19: Decision power of 4.017e-02 3.854e-02 3.946e-02 3.901e-02

municipal councils (1.07e-05***) (2.31e-05***) (6.51e-06***) (7.87e-06***)

E20: Population density 4.091e-05 4.098e-05 5.228e-05 5.647e-05

(0.000527***) (0.000177***) (0.000135***) (1.65e-05***)

E21: Urbanization rate 5.771e-03 5.479e-03 5.121e-03 5.154e-03

(2e-16***) (2e-16***) (2e-16***) (2e-16***)

E22: Alvorada Project 6.545e-02 8.906e-02 5.163e-02 5.405e-02

(1.32e-05***) (1.59e-11***) (0.000910***) (0.000461***)

E23: Drought Area -6.742e-02 -5.855e-02 -4.234e-02 -4.327e-02

(Polgono da Seca) (1.81e-06***) (1.89e-05***) (0.002102**) (0.001666**)

Capital 1.789e-01 1.716e-01 1.841e-01 2.064e-01

(0.012682*) (0.008699**) (0.007146**) (0.001291**)

Tourist municipalities -7.054e-03 - 6.045e-03

(0.720006) (0.777199)

Royalties -1.551e-01 -1.541e-01 -1.549e-01 -1.545e-01

(2e-16***) (2e-16***) (2e-16) (2e-16***)

F-Statistic: 54.39 (< 2.2e-16) 94.53 (< 2.2e-16) 43.49 (2.2e-16) 66.16 (< 2.2e-16)

Residual 0.3074 (4731DF) 0.3077(4741DF) 0.2947(4731DF) 0.2947(4739 DF)

Standard Error

Notes: ***, **, * denote significance levels at 1-, 5-, and 10%, respectively;

p-values in parentheses.

were relevant to explain efficiency in all models we estimated. Both popula-

tion density and urbanization rate exert strong positive effects on efficiency

scores, thus corroborating previous insights suggested by the nonparametric

analysis described in Section 3. Indeed, the fact that cities with very low

density rates tend to be less efficient is most likely due to the presence of

local increasing returns to scale prevalent among small municipalities. The

scattered population in those cities tends to raise the average costs of public

services, thus preventing them from exploiting the economies of scale that

characterize the production of those services, and so they fail to optimally

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

use their resources.8 On the other hand, higher density rates decrease the

costs of the above-mentioned services, and hence contribute to increasing

efficiency. The strong effect of the urbanization rate on efficiency measures

(its p-value is smaller than 2 1016 ) also captures the scale effect, as the

average costs of local public services in the least inhabited rural areas tend

to be higher. Moreover, this variable may capture the fact that human and

material administration resources are scarcer in rural areas, thus reducing

the efficiency indices for less urbanized communities.

party on efficiency. The main Brazilian political parties considered are: Lib-

eral Front Party (PFL - Partido da Frente Liberal), Party of the Brazil-

ian Democratic Movement (PMDB - Partido do Movimento Democratico

Brasileiro), Social Democratic Party (PSD - Partido Social Democratico),

Workers Party (PT - Partido dos Trabalhadores), Popular Socialist Party

(PPS - Partido Popular Socialista), Brazilian Progressive Party (PPB - Par-

tido Progressista Brasileiro), Brazilian Labor Party (PTB - Partido Trabal-

hista Brasileiro) and Democratic Labor Party (PDT - Partido Democratico

Trabalhista). Only the coefficients for PMDB and PDT were significant at

a 5% level, thus indicating that municipalities run by a mayor coming from

these parties tend to be less efficient. The result holds for all models we

considered, including the ones using quantile regression, but it deserves a

more careful analysis.

found an inverse relationship between the efficiency scores and the degree

to which the real estate register is up-to-date; such a relation is significant

in all estimated models. This variable is a proxy for a good fiscal admin-

istration; yet, our results consistently suggest that even if a mayor is eager

to maintain the tax revenues, this does not prevent him/her from neglecting

the way they are spent. On the other hand, the inverse relationship between

efficiency and participation in intermunicipal consortia may be due to the

fact that, ceteris paribus, only the municipalities which suffer the most from

the lack of adequate scale of public service production, thus being likely to

present low efficiency scores, have an incentive to join those consortia in an

attempt to reduce average costs. There is also a strong positive relationship

8 In the case of educational services, there is wide evidence that operating costs decrease

with enrollment due to the existence of high fixed costs. Consequently, larger schools tend to

be more cost-efficient because the fixed costs are diluted among a higher number of students.

This fact clearly discriminates against small municipalities since their schools have only a few

students on average, and thus they tend to present excessively high average costs. Were those

cities larger, they would be able to enroll a greater number of students and reduce the cost per

student without significant loss of educational quality. A similar explanation applies to other

local public services.

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

between the efficiency scores and the level of computer utilization (p-value:

3.36 1013); such a relationship was expected; indeed, as computer utiliza-

tion eases administrative tasks, it is a powerful tool for management, thus

being indicative of a superior and more effective decision-making process.

Finally, in all estimated models, we found that the more power yielded to

municipal councils, the better the effectiveness in resource utilization as mea-

sured by efficiency indices. This was expected, since those councils tend to

increase the transparency of the budgeting process, hence contributing to

more effective control over corruption and over the misuse of local funds.

heteroskedasticity, thus justifying the utilization of robust standard errors. Indeed,

the p-value of the test is 7.971 1012, thus indicating strong evidence against the

assumption of constant conditional variances.

To complement the econometric analysis carried out in the previous subsec-

tion, we shall proceed to a more detailed investigation using quantile regression

methods, as introduced by Koenker and Bassett (1978). Just as classical linear

regression allows one to estimate models for conditional mean functions, quantile

regression methods offer a mechanism for estimating models for the conditional

median function, and also for other conditional quantile functions. This allows

us to investigate the impacts of the conditioning variables on the efficiency scores

across different efficiency classes. The basic idea is to estimate the -th quantile

of efficiency conditional on the different explanatory variables, assuming that this

quantile may be expressed as a linear predictor based on these variables. To that

end, we considered the following conditional quantiles: 0.10 (percentile 10%), 0.25

(lower quartile), 0.50 (median), 0.75 (upper quartile) and 0.90 (percentile 90%).

In each case, we kept the explanatory variables that proved to be statistically

significant. The results are shown in Tables 4 (DEA-CCR) and 5 (DEA- BCC).

At the outset, notice that the geographic effect is present in all conditional

quantiles analyzed; however, this influence is much stronger on the more inefficient

municipalities. Additionally, note also that the capital effect is significant at all

quantiles for DEA-BBC and from the lower quartile up to the third quartile,

inclusive, for DEA-CCR. That is, there is a premium of efficiency, other things

equal, for capitals.

Also, for municipalities in the lowest efficiency class, their location on the

Drought Area (Polgono das Secas) is not important as far as the interest lies in

explaining efficiency, thus suggesting that for such cities other sources of ineffi-

ciency predominate over their location.

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

Table 4

Determinants of the DEA-CCR efficiency scores in Brazilian municipalities quantile

regression 2001

= 0, 10 = 0, 25 = 0, 50 = 0, 75 = 0, 90

Intercept -1.38413 -1.19915 -1.03893 -0.92051 -0.63196

(0.00000) (0.00000) (0.00000) (0.00000) (0.00000)

W1EFIC - spatial correlation 0.06012 0.03935 0.03264 0.03339 0.01804

(0.00000) (0.00000) (0.00000) (0.00000) (0.01884)

E7: PMDB -0.04483 - -0.02938 -0.03843 -0.04642

(0.01539) (0.01728) (0.00288) (0.00226)

E13: PDT -0.10112 - -

(0.07923) (0.00073)

E16: Real estate register -0.28662 -0.23657 -0.12799 - -

(0.00002) (0.00000) (0.00001)

E17: Participation in -0.04769 -0.06757 -0.06073 -0.06839 -0.06741

intermunicipal consortia (0.00891) (0.00000) (0.00000) (0.00000) (0.00000)

E18: Level of computer utilization 0.13157 0.12568 0.08889 0.04954 -

(0.00000) (0.00000) (0.00000) (0.00008)

E19: Decision power of municipal 0.05059 0.03215 0.03131 0.03839 0.04619

councils (0.00310) (0.01022) (0.00169) (0.00068) (0.00042)

E20: Population density 0.00005 0.00003 0.00004 0.00004 0.00006

(0.02141) (0.00000) (0.00937) (0.00247) (0.00216)

E21: Urbanization rate 0.00594 0.00605 0.00585 0.00565 0.00515

(0.00000) (0.00000) (0.00000) (0.00000) (0.00000)

E22: Alvorada Program 0.09479 0.11654 0.09726 0.08727 0.04073

(0.00001) (0.00000) (0.00000) (0.00000) (0.02345)

E23:Drought Area - -0.05178 -0.04818 -0.06185 -0.08570

(Polgono da Seca) (0.00832) (0.00157) (0.00000) (0.00002)

Capital - 0.15696 0.18060 0.19309 -

(0.00000) (0.00002) (0.03485)

Royalties -0.29870 -0.18286 -0.13622 -0.10543 -0.10344

(0.00000) (0.00000) (0.00000) (0.00000) (0.00000)

analysis, using the BCC version, is much more clarifying than the previous ones.

Indeed, for inefficient municipalities, it clearly shows that a higher proportion of

the low-income population contributes to increasing efficiency scores, although

this effect is rather small. The underlying reason is most likely the fact that those

communities usually benefit from a number of social programs that are closely

monitored; thus, with them comes a natural pressure for more rational resource

utilization. Regarding the impact of average income on efficiency, the BCC results

confirm our previous finding that it has a negative effect on efficiency. Finally, as

for royalty revenues, the quantile regression estimates confirm our previous results,

namely that receivers of substantial royalty revenues are less efficient. The new

result here is the fact that this impact gets smaller as efficiency increases, being

particularly damaging for highly inefficient units. This may indicate that they

have no managerial capabilities to usefully handle the additional resources.

According to the quantile regression results, the influence of politics on effi-

ciency is similar to what was previously found. Except for two parties, PDT and

PMDB, the mayors political affiliation has no impact on the efficiency scores.

However, here, the estimated negative effects for those parties are not very signif-

icant; particularly, in the case of PDT, the negative effect is present only for the

two lowest conditional quantiles ( = 0.10 and = 0.25).

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

Table 5

Determinants of the DEA-BCC efficiency scores in Brazilian municipalities quantile

regression 2001

= 0, 10 = 0, 25 = 0, 50 = 0, 75 = 0, 90

Intercept -1.32959 -1.14491 -0.91908 -0.77514 -0.58300

(0.00000) (0.00000) (0.00000) (0.00000) (0.00000)

W1EFIC spatial correlation 0.05939 0.043301 0.03079 0.03009 0.01042

(0.00000) (0.00000) (0.00000) (0.00000) (0.12964)

E3: % of households whose head 0.00404 0.00391 0.00190 -0.00031 -0.00073

earns up to 1 minimum wage (0.00038) (0.00000) (0.00609) (0.65627) (0.43679)

E4: Average earnings -0.00005 -0.00007 -0.00013 -0.00017 -0.00016

(0.36421) (0.13181) (0.00002) (0.00023) (0.00000)

E7: PMDB -0.05472 -0.03855 -0.02847 -0.03585 -0.04428

(0.00348) (0.00522) (0.01140) (0.00205) (0.00131)

E13: PDT -0.13924 -0.07225 -0.04576 -0.04690 -0.04162

(0.00000) (0.00156) (0.05766) (0.03194) (0.18252)

E16: Real estate register -0.25519 -0.23130 -0.15254 -0.03686 0.02290

(0.00002) (0.00000) (0.00000) (0.27449) (0.62725)

E17: Participation -0.04298 -0.05681 -0.06016 -0.06195 -0.04865

in intermunicipal consortia (0.00810) (0.00002) (0.00000) (0.00000) (0.00007)

E18: Level of 0.09712 0.11219 0.07437 0.03983 -0.00080

computer utilization (0.00000) (0.00000) (0.00000) (0.00090) (0.95586)

E19: Decision power of 0.04568 0.04063 0.03214 0.04384 0.04842

municipal councils (0.00262) (0.00100) (0.00060) (0.00002) (0.00003)

E20: Population density 0.00005 0.00003 0.00007 0.00006 0.00006

(0.00000) (0.00000) (0.00000) (0.00208) (0.00000)

E21: Urbanization rate 0.00515 0.00563 0.00545 0.00530 0.00511

(0.00000) (0.00000) (0.00000) (0.00000) (0.00000)

E22: Alvorada Program 0.06627 0.07644 0.05019 0.05995 0.03542

(0.00545) (0.00026) (0.00200) (0.00051) (0.08215)

E23:Drought Area -0.01010 -0.05159 -0.03456 -0.05202 -0.06489

(Polgono da Seca) (0.65653) (0.00565) (0.02235) (0.00048) (0.00117)

Capital 0.22598 0.20778 0.17652 0.22153 0.19794

(0.00746) (0.00000) (0.00000) (0.00287) (0.00428)

Royalties -0.27136 -0.17746 -0.13238 -0.10369 -0.10160

(0.00000) (0.00000) (0.00000) (0.00000) (0.00017)

Moreover, our results reveal that the benefits of increased computer utilization

decrease as the level of efficiency increases. Indeed, the estimated coefficients

corresponding to this variable for the conditional quantiles = 0.10, 0.25, 0.50,

0.75 are 0.132, 0.126, 0.089 and 0.050, respectively, thus indicating the existence

of diminishing marginal benefits for computer usage. Due to the widespread use

of computer equipment in the highly efficient municipalities, computer use no

longer constitutes a proxy for superior management. Contrary to the aggregate

analysis, where the negative effect of the degree to which the real estate register

is up-to-date on efficiency was clearly verified, in the quantile regression analysis

this is only true for the most inefficient units.

On the other hand, we thought that the inverse relationship between efficiency

and participation in intermunicipal consortia was caused by diseconomies of scale

prevalent among inefficient municipalities. Yet, here the results show that, ex-

cept for the two extreme quantiles ( = 0.10 and = 0.90), this effect is quite

widespread, thus suggesting that even relatively efficient municipalities cannot

reach the optimum size for hospitals, for instance, and thus seek to join consortia

in an attempt to reduce costs. Notice also that for the lowest classes of efficiency,

the decision power of the municipal councils was less significant, thus meaning less

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

control over the use of public resources, once more attesting that those cities lack

managerial capabilities.

Last but not least, as in the preceding analysis, the scale variables population

density and urbanization rate have positive and significant effect upon efficiency.

To conclude our investigation, we shall examine a dataset where the municipal-

ities do not have any neighborhood relationship. The new sample was constructed

as follows: we selected the capitals and then randomly selected other units sub-

ject to the restriction that no two municipalities have a distance of less than 50

(fifty) kilometers between them in order to eliminate spatial correlation. The new

dataset includes 768 municipalities whose average efficiency is 0.520, whose median

efficiency is 0.500, the standard deviation is 0.1795, and the minimum efficiency

is 0.0947. With the DEA-CCR variant, roughly 2% of the communities are fully

efficient. As before, in the econometric analysis, we first fitted a model including

most of the conditional variables (model 1) and later, in model 2, we only consid-

ered the ones that were significant in the first model. The results are displayed in

Table 6.

As a general remark, we notice that the main results using this new sample

are quite similar to the ones obtained when the complete dataset was used. Yet,

we observe a few noteworthy differences. First, population density, a variable

that stands for economies of scale, is no longer statistically significant. Secondly,

the variable that measures royalty revenues is not significant in this sample, in

model 2, at the nominal level of 10%. In order to investigate this result, we have

estimated quantile regressions for the following conditional quantiles: = 0.10,

0.25, 0.50, 0.75, 0.90.

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

Table 6

Determinants of the DEA-CCR efficiency scores for selected Brazilian municipalities

2001

Explanatory variables Model 1 Model 2

Coefficients p-value Coefficients p-value

Intercept -7.795e-01 2.71e-09*** -0.719982 9.23e-

10***

E1: Personnel expenses 2.621e-10 0.169141 - -

E3: % of households whose head 3.196e-03 0.070036 - -

earns up to 1 minimum wage

E4: Average earnings -1.307e04 0.132175 - -

E6: PFL -7.254e-02 0.111793 - -

E7: PMDB -5.010e-02 0.267346 - -

E8: PSDB -3.212e02 0.488912 - -

E9: PT -3.170e-02 0.656756 - -

E10: PPS -1.499e-01 0.030415* -0.108346 0.0726

E11: PPB -5.698e-02 0.293851 - -

E12: PTB -5.456e-03 0.925034 - -

E13: PDT -8.125e-02 0.196863 - -

E16: Real estate register -2.297e-01 0.045026* -0.216372 0.0560

E17: Participation in intermunicipal -2.893e-02 0.292917 - -

consortia

E18: Level of computer utilization 1.120e-01 0.000111*** 0.057208 0.0330*

E19: Decision power of 5.194e-02 0.038016* 0.046399 0.0645

municipal councils

E20: Population density 1.937e-06 0.955813 - -

E21: Urbanization rate 4.082e-03 1.19e-08*** 0.002582 3.28e-

05***

E22: Alvorada Program 6.570e-02 0.066931 - -

E23: Drought Area -3.786e-02 0.300383 - -

(Polgono da Seca) 3.304e-01 0.003270** 0.354782 2.42e-

06***

Capital

Metropolitan areas 7.922e-03 0.896420 - -

Royalties -1.223e-01 0.029736* -0.079908 0.1431

F-Statistic: 5.999 (4.714e-16) - 13.46 (2.2e-16) -

Residual Standard Error 0.3364 (745 DF) - 0.3408(760) -

Notes: ***, **, * denote significance levels at 1-, 5-, and 10% respectively.

The results show that the negative impact of royalty revenues on efficiency is

statistically significant only for the upper quartile, = 0.75. This means that, for

this sample, the results contradict the ones obtained when applying both the BCC

and the CCR methods to the entire set. Recall that in both models, clearly, the

negative impact of royalty revenues decreased with the efficiency level. Lastly, the

impact of the mayors party affiliation on efficiency changes a great deal as now

neither PMDB nor PDT exerts negative influence on efficiency, as they appeared

to do earlier. Rather, PPS now appears as the only political party to negatively

affect efficiency.

6. Concluding Remarks

In this paper we first estimated the DEA CCR and BCC technical efficiency

scores for nearly five thousand Brazilian municipalities by applying a method that

combines bootstrap and jackknife resampling to eliminate the effect of outliers and

measurement errors in the data. The computed efficiency scores, as well as their

ranks, proved to be very robust for both variants, thus increasing the credibility

of the estimated frontiers. Since the estimated efficiency scores are affected by

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

exogenous characteristics, which were not taken into account in our DEA calcula-

tions, we included those factors in the analysis. To that end, we used econometric

methods (including quantile regression) to investigate how the excluded variables

influence the computed scores. The econometric results proved to be very robust

to the nonparametric efficiency variants used as dependent variable. The esti-

mated coefficients were also very stable relative to variations in the econometric

specifications, in the techniques used and in the sample.

As one would expect, the spatial effect appears to be statistically significant,

and hence it should not be overlooked when analyzing municipal data. Also, there

is an efficiency premium for capitals, which does not hold for other metropolitan

areas. In addition, as expected, the communities located in the drought areas

(Polgono das Secas) tend to be less efficient than their counterparts in more

clement areas, hence showing that it is more difficult for these cities, which are

assailed by adverse climatic conditions, to properly supply public services.

The scale variables (population density and urbanization rate) also play impor-

tant roles in explaining the efficiency scores, thus supporting our previous insight

that the recent proliferation of small municipalities in Brazil does not lead to an

efficient usage of public resources. Their small sizes prevent them from benefit-

ing from the economies of scale inherent to the production of public services and,

as a consequence, they tend to operate with higher average costs, thus wasting

resources.

As for the management variables, the inverse relationship between efficiency

and participation in intermunicipal consortia may be due to the fact that, ceteris

paribus, only the municipalities that operate on a scale much below the optimum,

thus being likely to present low efficiency scores, have an incentive to join those

consortia in an attempt to reduce average costs and increase efficiency. There is

also a strong positive relationship between the efficiency scores and the level of

computer utilization. Such a relationship was expected; since computer utilization

eases administrative tasks, it is a powerful management tool and thus it can be

viewed as an indicator of a superior and more effective decision-making process.

The quantile regression estimates suggest that the less efficient the municipality,

the higher the benefits derived from computer utilization. We detected an inverse

relationship between the efficiency scores and the degree to which the real estate

register is up-to-date. Additionally, we found that the more power yielded to

municipal councils, the better the effectiveness of resource utilization as measured

by the efficiency indices. This is rather predictable since those councils tend to

increase the transparency of the budgeting process, hence contributing to better

control over corruption and over the misuse of local funds.

Last but not least, the socio-economic variables, such as the mean income level

and the poverty proxy, were significant only when the efficiency scores were es-

timated by means of the DEA-BCC variant; surprisingly, for both variables, the

sign of the effects were reversed. Thus, our results imply that poor cities, by

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

wisely using their resources, may overcome their initial environmental disadvan-

tages. Furthermore, among the very poor municipalities, those participating in

the Alvorada Program tend to be more efficient, hence indicating that a better

management could be a by-product of this program. Finally, the municipalities

that receive substantial royalty revenues tend to be less efficient, then suggesting

that the extra revenues, rather than encouraging the optimal use of resources,

seem instead to contribute to a relaxation of fiscal constraints and to increased

inefficiency. The main conclusion here is that higher revenues public and/or

private instead of promoting efficiency, as measured by access to public services

may lead to relaxed budget constraints and spendthrift behavior.

References

Andersen, P. & Petersen, N. C. (1993). A procedure for ranking efficient units in

data envelopment analysis. Management Science, 39:12611264.

Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimat-

ing technical and scale efficiencies in data envelopment analysis. Management

Science, 30:10781092.

Banker, R. D. & Gifford, J. L. (1988). A relative efficiency method for the evalu-

ation of public health nurse productivity. Mimeo.

inputs and outputs. Operation Research, 34:513521.

Cazals, C., Florens, J. P., & Simar, L. (2002). Non parametric frontier estimation:

A robust approach. Journal of Econometrics, 106:125.

Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring efficiency of decision

making units. European Journal of Operational Research, 1:42944.

Cherchye, L., Kuosmanen, T., & Post, G. T. (2000). New tools for dealing with

errors in variables in DEA. DES Discussion Paper no. 00.06.

known form. Computational Statistics and Data Analysis, 45:215233.

methods. Journal of Statistical Computation and Simulation, 74:215232.

rics. Oxford University Press, New York.

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

4a Escola de Series Temporais e Econometria, Rio de Janeiro.

Fare, R., Grosskpof, S., & Lovell, C. K. (1985). The Measurement of Efficiency

of Production. Kluwer-Nijhoff Publishing, Boston.

Fare, R., Grosskpof, S., & Lovell, C. K. (1994). Production Frontiers. Cambridge

University Press.

of the Royal Statistical Society, 120:253281.

programming efficiency scores. Journal of Productivity Analysis, 8:1933.

estimator of the Tobit model. Econometrica, 49:505513.

enterprises spill over to other enterprises in China? An application of post-DEA

bootstrap regression analysis. In Lloyd, P. J. & Zang, X. G., editors, Modelling

the Chinese Economy. Edward Elgar Press, London.

Econometrics, 5:7585.

of Econometrics, 17:107112.

Institute for Business Economic Studies (RIBES), Rotterdam. Report 9911.

errors in the linear regression model. The American Statistician, 54:217224.

education production using DEA and regression analysis. In Charnes, A. &

Cooper, W. W., editors, Data Envelopment Analysis: Theory, Methodology and

Applications. Kluwer Academic Publishers, Boston.

variance matrix estimators with improved finite-sample properties. Journal of

Econometrics, 29:305325.

Maria da Conceicao Sampaio de Sousa, Francisco Cribari-Neto and Borko D. Stosic

districts. In Fried, H. O., Lovell, C. A. K., & Schmidt, S. S., editors, The

Measurement of Productive Efficiency. Oxford University Press, Oxford.

tornos de escala na producao de servicos publicos municipais. Revista Brasileira

de Economia, 53:433461.

ing efficiency in Brazilian municipalities: A non-parametric approach. In West-

ermann, G., editor, Data Envelopment Analysis in the Service Sector, pages

237267. DUV, Gabler, Wiesbaden.

robust efficiency measurement. Journal of Productivity Analysis, forthcoming.

to estimate production-frontier-based technical efficiency measures. Journal of

Business and Economic Statistics, 7:4959.

uating technical efficiency measures in manufacturing. Journal of Productivity

Analysis, 3:33763.

Seaver, B. L. & Triantis, K. P. (1995). The impact of outliers and leverage points

for technical efficiency measurement using high breakdown procedures. Man-

agement Science, 41(6):93756.

of Productivity Analysis, 20:391424.

models: The state of the art. Journal of Productivity Analysis, 13:4978.

Books, Lexington.

Stosic, B. & Sampaio de Souza, M. C. (2003). Jackstrapping DEA scores for robust

efficiency measurement. Anais do XXV Encontro Brasileiro de Econometria.

metrica, 26:2436.

for technical efficiency performance assessment. Journal of Productivity Analy-

sis, 13:203226.

Explaining DEA Technical Efficiency Scores in an Outlier Corrected Environment

a direct test for heteroskedasticity. Econometrica, 48:817838.

Wilson, P. (1993). Detecting influential observations in data envelopment analysis.

Journal of Productivity Analysis, 6:2745.

Wilson, P. (1995). Detecting influential observations in deterministic non-

parametric frontier models. Journal of Business and Economic Statistics,

11:319323.

Xue, M. & Harker, P. T. (2002). Ranking DMUs with infeasible super-efficiency

DEA models. Management Science, 48:705710.

Yu, C. (1998). The effects of exogenous variables in efficiency measurement A

Monte Carlo stydy. European Journal of Operational Research, 105:569580.

- Calibration by Linear Regression - TutorialЗагружено:patrickjanssen
- US Federal Reserve: ifdp567Загружено:The Fed
- Capital market imperfection and corporate investment: Nepalese evidenceЗагружено:kapildeb
- Treynor Black IllustrationЗагружено:Ahmad Bilal
- rq_ch6.pdfЗагружено:silvio de paula
- gen4Загружено:azizratan96
- Analysing Plant Trails by Comparing Recovery-grade Regression LinesЗагружено:Sarvesha Moodley
- OLS (1)Загружено:aswjsalaf
- A Thomas Hand OutЗагружено:ermodi20052082
- 1.Man-challenges in Service Delivery Within the-peter Kiprotich Cheruiyot 123Загружено:Impact Journals
- chapter 08 part 2Загружено:api-232613595
- linear regression - macro.pdfЗагружено:luanasenos
- Exact InferenceЗагружено:Roger Asencios Nuñez
- Heckman Selection ModelsЗагружено:undead_ub
- 10.2307Загружено:wang_kris
- longitudinal.pdfЗагружено:ikin sodikin
- ExamplesR Power LawЗагружено:Ken Matsuda
- DIFFERENCES IN PERCEPTION OF MARKETING MIX, SATISFACTION, AND LOYALTY AMONG REGIONAL AND SHARIA BANKS CUSTOMERS.Загружено:IJAR Journal
- Regression 1 SimpleLinearModelЗагружено:Ives Lee
- ProductionCobbDouglasFct.empvalid.fraserЗагружено:Maimoona Ghani
- Williams Et Al. - 2013 - Assumptions of Multiple Regression Correcting TwoЗагружено:Víctor Jurado
- 1507.07280Загружено:juan cota maod
- bg_dtpmЗагружено:Jay Sagar
- Fundamentals of Applied Econometrics.pdfЗагружено:Imam Awaluddin
- Bab 2.pptЗагружено:puput indah sari
- Regression Analysis2Загружено:RajVedricVarias
- REGRESSION ANALYSISЗагружено:vijay kumar Gour
- Ceramic IndustryЗагружено:Shishir Gupta
- ch05Загружено:Sidrah Bux
- -Загружено:Soek Yee Chee

- Guidelines for Mba Final ProjectЗагружено:Sadanand Yadav
- Rutherford 2016 Affect Theory and the Empirical 102215-095843Загружено:Fabi Silva
- GEN YЗагружено:blueberrychair2
- Supporting Fund for Innovative IdeasЗагружено:viveksharma51
- Cec2013 Lsgo Benchmark Tech ReportЗагружено:hamidnasiri1369
- ICMIT2008-programbook-fullЗагружено:nhatquang0805
- 7 Buble Juras Matic PrintЗагружено:Kusumaningrum Wijayanti
- 01Lecture IntroductionЗагружено:Gonzalo Chamorro
- Succession Planning for Board MembersЗагружено:Alexandru Ionuţ Pohonţu
- Measuring Sustainable CitiesЗагружено:ऋषिकेश कोल्हे पाटिल
- 5 Questions on Project Quality ManagementЗагружено:shakeelkhn18
- Social Life AfricaЗагружено:Mehmet Arif Bayhan
- ets_10_1.pdfЗагружено:عمار سهيلي
- Financial & Mgmt AccountingЗагружено:Pravin Upadhyay
- ICT80011-40005 Module 01Загружено:Vichitra Joon
- Solutions to RATIONAL FUNCTIONS class handoutЗагружено:Marc Lambert
- Software MistakesЗагружено:Gaurav Bansal
- Delacato EvolutionЗагружено:Mazilescu Alina
- dreams mainЗагружено:api-358967453
- Labrianidis -The Moving FrontierЗагружено:Anastasia Alexiadou
- Mathematics Learning Performance and MathematicsЗагружено:Romeo Madrona Jr
- 20090619140655BBPS 4103 15.Topik 11Загружено:Ashley Wong
- practical1223.docxЗагружено:Ralph Fernandez
- Investigation On Behavior of Cold Formed Steel in Beam Column ConnectionsЗагружено:International Journal for Scientific Research and Development - IJSRD
- 201502_jpt_multiphaseflow.pdfЗагружено:Michelle Guerra
- Finite Element Analysis of Externally Prestressed Segmental BridgesЗагружено:Abu Bidu
- Morehead State UniversityЗагружено:Amitoj Singh
- Paulos, John Allen - Once Upon A Number - The Hidden Mathematical Logic of Stories.docxЗагружено:Hector Protractor
- CMN279_2016-2017FЗагружено:Alex Jones
- CEO: Different Reviews on PhD in Artificial IntelligenceЗагружено:Global Journal Of advanced Research

## Гораздо больше, чем просто документы.

Откройте для себя все, что может предложить Scribd, включая книги и аудиокниги от крупных издательств.

Отменить можно в любой момент.