Evidence on economies of scale in local public service provision: A meta‐analysis

Abstract

The standard theory of optimal jurisdictional size hinges on the existence of economies of scale in the provision of local public goods and services. However, despite its relevance for forced local amalgamation programs and related policies, the empirical evidence on the existence of such economies of scale remains elusive. The main goal of this paper is to produce an updated and comprehensive quantitative review of the existence of economies of scale in the provision of local public goods using a meta‐analysis approach to systematize the wide range of empirical approaches and modeling frameworks found in the previous literature. Our analysis confirms the presence of moderately increasing to constant returns to scale in the provision of local services with no reduction in the average costs of production in the delivery of most local public services beyond a certain, modest jurisdictional size, which many studies have estimated at 10,000 residents. Also, the potential for economies of scale differs at least across three traditional services: education, water and sanitation, and garbage collection, being highest for education and lowest for garbage collection. Our analysis also offers guidelines for future empirical research in this area. Physical output and production cost data should be used, together with translog specifications for the modeling of cost functions. Last, we find evidence that the determinants of output cost elasticity include bidirectional publication bias and population density but do not include the presence or absence of modern “lean” production technologies or the (perceived) capital intensity of the sector, contrary to conventional wisdom. These findings have significant policy implications for countries considering jurisdictional consolidation programs.

Economy of Scale of Energy Intensity in Aquifer Storage and Recovery (ASR)

“…Another study found a similar trend between energy intensities and the volume of water produced among water treatment plants; the larger the volume of water produced, the less energy-intensive the process was found to be [31]. These trends have not only been found in the water industry, but also in services such as transportation, garbage collection, public schooling, and electricity [32,33].…”

“…The reported values were considered statistically significant if the p-value was less than or equal to 0.05, if the R 2 value was equal to or greater than 0.8, or if the RMSE value was between 0.2 and 0.5. In a literature review conducted on economies of scale in the local public service provision, out of seventy-six analyzed studies, thirty-five (46%) used the ordinary least squares test, the largest percentage for a single test [33]. To remain consistent with the findings from this study and others, we selected this test.…”

“…This economy of scale phenomenon, as seen in the recovery process, is very prevalent in the water industry. Economies of scale relating to water supply and water sanitation have been seen in various countries around the world including Portugal, Ireland, Spain, and multiple developing countries [33,[41][42][43]. One study found an economy of scale between unit costs and the size of community water systems; as the size of community water systems increased, their unit costs decreased [35].…”

“…In the energy sector, an economy of scale was found comparing the average cost per 1000 kWh and the total kilowatt-hour output. These economies of scale have also been found in education, sanitation, garbage collection, and urban transportation, among other sources [31][32][33][34][35][36]. While this trend exists in many aspects of the water sector, it has not been examined in ASR.…”

Where Will Older Adults Reside: Understanding the Distribution of Naturally Occurring Retirement Communities in Australia

“…Furthermore, the concentration of a large number of older adults living in the same area (NORCs) generates economies of scale [36]. This scenario presents a beneficial opportunity for the government to provide home care and support services at a lower cost within these communities [37]. The concentration of older adults makes it easier and more cost-effective to deliver services, as resources can be centralized and used more efficiently.…”