Municipal Efficiency and Economies of Scale in Bosnia and Herzegovina

Abstract

This study estimates municipal efficiency and economies of scale of municipalities in Bosnia and Herzegovina by employing data envelopment analysis (DEA) with variable (VRS) and constant (CRS) returns to scale. The results indicate low overall municipal efficiency, with economies of scale reached in very few municipalities. The average municipal efficiency score is 0.7115 under DEA VRS assumption, where only 16% of municipalities are found efficient. The average scale efficiency is 0.7458 with full scale efficiency reached by only 11% of municipalities in Bosnia and Herzegovina. Furthermore, the analysis shows strong positive impact of number of inhabitants on overall municipal efficiency. Politically motivated fragmentation of municipalities, aiming to bring peace and stability to the country, did not go hand in hand with improved economic efficiency.