Determining the optimal size of local government: the case of Tasmanian councils

We estimated the optimal size of the most significant functions performed by Tasmanian councils between 1999 and 2008 using a non-parametric technique based on the shared input data envelopment analysis model. The principal advantage of this technique is that it not only provides an overall estimate of efficiency but it also allows for the estimation of ‘partial efficiencies’ and ‘cost shares’ when one input is shared among multiple outputs. Our results indicate that water supply and sewerage services, on average, were more efficient, whereas activities related to community health and safety and information systems warrant improvement. However, because the costs associated with water supply and sewerage services are considerably higher than the costs related to community health and safety and information systems, the elimination of these inefficiencies would result in greater cost savings for the Tasmanian local government sector.