Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches

The purpose of this paper is to analyze the efficiency of local governments in Belgium using a broad variety of non-parametric and parametric reference technologies. Specifically, we calculate indices of cost efficiency for five different reference technologies, two non-parametric ones (Free Disposal Hull (FDH) and variable returns to scale Data Envelopment Analysis (DEA)) and three parametric frontiers (one deterministic and two stochastic). We first compare the various alternatives in terms of the efficiency-inefficiency dichotomy, we look at the distributions of the different measures, and we consider the differences in ranking. In a final stage we examine the degree to which the calculated inefficiencies can be explained by a common set of explanatory variables.