Abstract

In this paper we clarify the differences between a procedure that uses an estimate of the standard cost and one that estimates an expenditure function. The former involves applying a structural form that requires an acceptable measurement of the outputs produced, while the latter opts for the corresponding reduced form, where the output is replaced by demand determinants that guided the administration to deliver such level of the service. The Register Office constitutes a typical case for which an estimate is presented using different variants of the same specification, applied to a balanced sample of about 3000 municipalities. The fitted values represent standard expenditure needs (SEN) to be admitted in relation to each municipal government's characteristics. In practice, the adopted technique presents a high degree of flexibility because it allows us to neutralise the effect of the regressors that, though necessary to avoid omitted variable problems, are not however recognized because they are potentially connected to specific preferences of individual administrations. The methodology presented also allows us to set target values for some variables. A comparison is presented between the results from the Register Office and the Local Police, particularly in relation with economies of scale.