One of the main problems in evaluating financial performance arises in carrying out comparisons between municipalities, as no account is taken of the impact of certain factors of the social and economic environment on the indicators in question. In this study, the concept of financial condition is applied, revealing the influence of such factors, and a methodology is proposed to minimize their effects on the results of the evaluation. The results of applying these to a sample of municipalities in Spain reveal that the model is useful for reinforcing the value of benchmarking between municipalities with similar characteristics. Points for practitioners The use of indicators for evaluating financial performance has advanced considerably in recent years. However, many criticisms have been made by public sector managers concerning the application of such indicators. One of these is that, in many cases, the values measured by different authorities are not comparable, as the services they provide differ significantly. If local authorities were grouped according to the social and economic factors influencing their provision of public services, the evaluations made would be much more effective, facilitating decision-making by supervisory bodies and by municipal managers.

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Various studies have sought to obtain a measure of the financial health of local authorities, via the concept of financial condition. However, in measuring this latter concept, two serious problems need to be addressed: The first concerns the inclusion or otherwise of socioeconomic variables in the proposed evaluation models, and the second, the difficulty of measuring the solvency in the level of services provided. Therefore, the authors have created a methodology to measure the financial condition of a local authority, including a variable to measure the quality of the services received by the population, and present a new treatment for the variables of the socioeconomic environment so that the financial and socioeconomic factors can be integrated. The application of this method to a sample of Spanish local authorities reveals its capability of minimizing the effects of the socioeconomic environment and maximizing the value of benchmarking, making comparisons between local authorities simpler and more effective.

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In this paper the Esscher premium calculation principle is applied to the non-compound collective model in a robust Bayesian context. We consider that uncertainty with regard to the prior distribution can be represented by the assumption that the unknown prior distribution belongs to a class of distributions and examine the ranges of the Bayesian premium when the priors belong to such a class. The assessment of the influence of the prior is termed sensitivity analysis or robustness analysis.