Intertemporal Budgeting and Efficiency

This paper introduces as an intertemporal variable cost indirect technology which permits technological change over time and allows for financial flexibility, i.e., intertemporal budgeting. It characterizes agencies which maximize outputs or services subject to the budget they face. We define Farrell-type output oriented technical efficiency under different financial regimes and efficiency gains from financial flexibilities. An empirical illustration based on a sample of Illinois municipalities is included