Measures, Public Private Partnerships and Benchmarking
Edited by Jaap de Koning
Chapter 14: Does Quality Matter? Analysing the Effect of Omitted Variables on Optimal Scale: An Application to Swedish Employment Offices
14. Does quality matter? Analysing the eﬀect of omitted variables on optimal scale: an application to Swedish employment oﬃces* Jonas Månsson 1 INTRODUCTION The aim of this contribution is to investigate what eﬀect omitting quality will have on policy recommendations regarding the optimal scale of production of employment oﬃce services. The reason for choosing the omission of quality indicators as the study object is the increasing emphasis on quality aspects in service sector production. In recent years, developments in the service sector have been characterized by structural change. In Sweden, mergers have been used as a tool to reduce ineﬃciency in the postal and banking sectors for instance. The underlying hypothesis has been the belief in economies of scale in the production of these services. Critics of merger policy claim that some of the alleged ineﬃciency can be explained by the superior quality of the outputs from the smaller units, and that mergers result in deterioration in quality. Others claim that the increased size of production units in the sector increases eﬃciency without changing the quality of the service. Despite the importance of the issue, only a few studies have explicitly included measures of quality in computations of eﬃciency (see eg Parkan (1987); Fixler and Zieschang (1992); Färe et al (1996)). Policy implications that can be derived from studying scale elasticity and scale eﬃciency relate to the way the scale of production can be changed to make it e...
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