RESOURCE USE IN LOCAL-GOVERNMENT ADMINIST RATION - HOW MUCH CAN BE SAVED BY MEANS OF LARGER MUNICIPALITIES

This article analyzes the use of administrative resources in Norwegian local government. The authors derive a demand function for administra tive resources for each local authority. The model assumes a community preference function for a set of public serivces, and the demand for administrative services is modeled as a function of the final demand f or services. This enables the separation of scale effects and other fa ctors that are hypothesized to have an impact on the demand for admini stration. The empirical estimation shows significant economics of scal e in local administration, and the effect is of economic importance fo r authorities with less than 5000 residents. The smaller authorities c onsume considerably greater administrative resources per capita than d o the larger ones. The extra spending in local authorities related to the diseconomies of scale is calculated. We find no indication of dise conomies of scale for the larger municipalities. The estimation shows that local revenue levels and demographic factors affect the size of t he administrative component.