Showing posts with label economies of scale. Show all posts
Showing posts with label economies of scale. Show all posts

Diseconomies of scale in government

Robin Hanson highlights an interesting study that hints with a fact-based analysis that governmental bodies get markedly less efficient as they get bigger:
Differences across public bodies are correlated with institutional characteristics rather than geography or size. Semi-autonomous bodies (universities and health authorities) pay the lowest prices. Compared to these, the average town government pays 13% more. The difference increases further for regional governments (21%), social security institutions (22%), while the average ministry tops the list with 40% higher prices...
This was in Italy, and incidentally, over 80% of the gap was found (not sure how) to stem from inefficiency, rather than corruption.

This is another bullet for those who argue that big state-run companies (e.g. NOCs) can never be as efficient as their private sector counterparts (but they had a lot of bullets already).