Total factor productivity growth and endogenous demand: Establishing a benchmark index for the selection of operational performance measures in public bus firms

Performance measurement in the public sector is recognized as important for tracking progress. The selection of indicators of performance is somewhat arbitrary and is made difficult by the absence of any benchmarks for screening to establish a systematic link with the overall measurement of performance. In this paper we promote the idea of establishing a reference benchmark index in the guise of an index of total factor productivity growth. The index is used to provide a mapping between itself and a number of operational indicators as a way of assisting organizations in implementing change that is compatible with improvements in overall productivity. The paper questions the wisdom of using an exogenously specified demand-side measure of output and proposes a procedure in which an exogenous supply-side measure of output is linked to an endogenous demand-side measure of output. The empirical study draws on 7 years of data from the eight public bus operators in Australia to highlight the value of the approach.