Abstract
In many public service industries, firms are assumed to maximize certain public goals and are not allowed to make any profits. These public service firms are financed by fixed and variable subsidies and fees-for-services paid by users. Standard economic models, such as the profit maximization and cost minimization model, are not suitable for describing the production structure and the economic behavior of these firms. Productivity and efficiency measures derived from these models therefore are not accurate. This paper derives a model that fits this type of firm and its economic context. It derives the exact mathematical relationships between public value, services delivered, (money) revenues, costs, service prices, resource prices and subsidies. In an empirical setting the model can be used as a reference to calculate productivity and efficiency scores. The usability of the model is demonstrated by an application to Social Labor Services in the Netherlands.
Similar content being viewed by others
References
Blank JLT (2000) Public provision and performance: contributions from efficiency and productivity measurement. Elsevier, Amsterdam
Blank JLT, Merkies AHQM (2004) Empirical assessment of the economic behaviour of Dutch general hospitals. Health Econ 13(3):265–280
Dalen DM, Gomez-Lobo A (1997) Estimating cost functions in regulated industries characterized by asymmetric information. Eur Econ Rev 41(3–5):935–942
Färe R, Primont D (1995) Multi-output production and duality: theory and applications. Kluwer Academic Publishers, Dordrecht
Färe R, Zieschang KD (1991) Determining output shadow prices for a cost-constrained technology. J Econ 54(2):143–155
Fried HO, Lovell CAK, Schmidt SS (2008) The measurement of productive efficiency and productivity growth. Oxford University Press, New York
Grosskopf S, Hayes KJ, Taylor LL, Weber WL (1997) Budget-constrained frontier measures of fiscal equality and efficiency in schooling. Rev Econ Stat 79(1):116–124
Grosskopf S, Hayes KJ, Taylor LL, Weber WL (2000). Input regulations and allocative efficiency in U.S. public schools. In: Blank JLT (ed) Public provision and performance. Amsterdam: Elsevier, pp 175–190
Hayes KJ, Razzolini L, Ross LB (1998) Bureaucratic choice and nonoptimal provision of public goods: theory and evidence. Public Choice 94:1–20
Laffont JJ, Tirole J (1993) A theory of incentives in regulation and procurement. MIT Press, Cambridge
Shephard RW (1974). Indirect production functions, vol 10. Verlag Anton Hain, Meisenheim Am Glan
Steinberg R (2004) The revealed objective functions of nonprofit firms. In: Steinberg R (ed) The economics of nonprofit enterprises, vol 181. Elgar, Cheltenham, pp 331–349
Zellner A (1962) An efficient method of estimating seemingly unrelated regression equations and tests for aggregation bias. J Am Stat Assoc 57:348–368
Acknowledgments
I would like to thank Vivian Valdmanis, Bert Balk, Alfons Oude Lansink, Patrick Koot and two anonymous referees for their valuable comments. Any errors are the sole responsibility of the author.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Blank, J.L.T. Maximizing public value for subsidized non-profit firms: a mathematical economic model. J Prod Anal 40, 173–183 (2013). https://doi.org/10.1007/s11123-012-0318-7
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11123-012-0318-7