Figure 1 - The concepts of efficiency and effectivenessMonetary and
non-monetary
resourcesInput Output OutcomeAllocative Efficiency EffectivenessEnvironment factors
e.g. Regulatory- competitive framework, socio-economic background,
climate, economic developmentTechnical EfficiencyMonetary and
non-monetary
resourcesInput Output OutcomeAllocative Efficiency EffectivenessEnvironment factors
e.g. Regulatory- competitive framework, socio-economic background,
climate, economic developmentTechnical EfficiencyInput Output OutcomeAllocative Efficiency EffectivenessEnvironment factors
e.g. Regulatory- competitive framework, socio-economic background,
climate, economic developmentTechnical Efficiency- The measurement of efficiency and effectiveness is complex. There are various ways to measure
public sector efficiency and effectiveness. Conceptually, efficiency is described by the relation
between input and output (see Figure 1), with the objective of maximising output for a given
amount of inputs; or of minimising inputs for a given output. Effectiveness relates the input to the
final policy objective (the outcome). For instance in the area of education, money spent or the
number of civil servants deployed for this public activity are often used as input. Output tends to
be measured by performance indicators, such as the number of pupils finishing secondary school
level. Since the outcome reflects the final policy objectives there can be different outcomes
between countries, such as low youth unemployment or high welfare levels. As there are several
limitations in covering the whole diversity of objectives, analytical work carried out so far has
focused on the measurement and assessment of efficiency. - Policy makers should be well aware that data limitations and the methodology applied can
significantly affect the results. Moreover, cross-country differences can often be explained by
factors beyond the control of decision makers. The choice of appropriate indicators is often
constrained by data availability and comparability across countries. Moreover, quality aspects have
to be taken into account. Not taking account of the quality of the teachers, for instance, could lead
to under- or overestimation of efficiency. Adjusting for such considerations is not easy and
moreover, it is not straightforward to measure governments' output or outcome when it comes to
non-market outputs. Against this background the development of comprehensive and comparable
data on input, output and outcome should be a priority for EU Member States. For example, as a
basic requirement for the efficiency analysis COFOG 2nd level data availability would facilitate the
data on monetary inputs. Experience has shown that focussing on individual spending areas is
more promising in order to derive concrete policy recommendations. The analyses so far have
focused on R&D and education but the efficiency of other important categories of public spending
such as social protection, and health care could also be investigated. Bearing in mind the
limitations and data constraints, first investigations in the spending areas of education and R&D,
however, show that efficiency gains are possible. - Public spending on education varies greatly in EU-countries and so do education outputs. Recent
work suggests that, in a number of countries, reforms could visibly enhance performance of pupils
while maintaining the education spending levels^4. Recent investigations on efficiency of education
(^4) Afonso A., St. Aubyn M. (2006), "Cross-country efficiency of secondary education provision: A semi-parametric
analysis with non-discretionary inputs", Economic Modelling 23 (3), 476-491.; Afonso A., St. Aubyn M. (2005), “Non-
parametric Approaches to Public Education and Health Efficiency in OECD Countries,” Journal of Applied Economics 8
(2), 227-246.; Sutherland D., Price R, Joumard I. and Nicq C. (2007), "Performance Indicators for public spending