Population Size and Economies of Scale in Local Government

Abstract

The existence of scale economies in the production of local government services is increasingly questioned by policy makers and academics. In place of the old orthodoxy that big is beautiful, a new orthodoxy is emerging that there are no significant scale effects. However, the empirical evidence does not warrant this conclusion. There may be scale economies in local services, but these relate to the output of service plants, not the size of the population; and there may be population effects on local performance, but these concern effectiveness and responsiveness rather than efficiency. Thus, economies of scale and population effects need to be tested separately but considered together in decisions on local government reorganisation.

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