Measuring the efficiency of public services: the limits of analysis

Policy makers are increasingly seeking to develop overall measures of the effi-ciency of public service organizations. For that, the use of 'off-the-shelf' statistical tools such as data envelopment analysis and stochastic frontier analysis have been advocated as tools to measure organizational efficiency. The analytical sophistication of such methods has reached an advanced stage of development. We discuss the context within which such models are deployed, their underlying assumptions and their usefulness for a regulator of public services. Four specific model building issues are discussed: the weights that are attached to public service outputs; the specification of the statistical model; the treatment of environmental influences on performance; the treatment of dynamic effects. The paper concludes with recommendations for policy makers and researchers on the development and use of efficiency measurement techniques. Copyright 2005 Royal Statistical Society.