Spatial analysis of technical efficiency in the provision of local public goods: The case of Chilean mining municipalities

Abstract

Countries with intensive mineral extraction generate resource windfalls for municipalities to improve population's welfare in mining areas. However, this process may be inefficient due to negative incentives inherent in their administration, moving away from the actual objective of these resources. This study analyzes the level of technical efficiency over the provision of public goods, namely public education and well-being in Chilean municipalities using a panel approach. To study technical efficiency, data were obtained from the National System of Municipal Information and the National Socioeconomic Characterization Survey, between the years 2008–2019 for 342 Chilean municipalities. Stochastic Frontier Analysis in a panel context is employed to control for heteroskedasticity and unobserved heterogeneity. Chilean municipalities are ranked by technical efficiency in the provision of public goods and their persistence in space and time is examined. Two exogenous rules are used: mining municipalities and a classification of municipalities according to their capacity of provision. Similar localities are compared, and the effects of resource windfalls over efficiency are analyzed. The results reveal that technical efficiency is lower in mining areas with high persistence over the study period, providing evidence for the need to redesign the compensation mechanism derived from mining industry.