Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: Infrastructure Finance's Effectiveness and Efficiency

Thursday, November 12, 2015 : 8:30 AM
Pearson II (Hyatt Regency Miami)

*Names in bold indicate Presenter

NakHyeok Choi, Florida International University
The purpose of this study is to measure efficiency and effectiveness of infrastructure management and to investigate their relation by using statistical methods. In Public Administration field, previous literature on infrastructure so far was mainly about determinants of spending (e.g., Congleton & Bennett, 1995; Walden & Eryuruk, 2012), normative approach of how to manage (e.g., Kamensky, 1984; Millar, 1988; Nunn, 1990), factors affecting efficiency (e.g., Neshkova & Guo, 2012; Rodriguez, 1999), and infrastructure expenditure’s impact on economic development (e.g., Agénor, 2010; Aschauer, 1993; Poterba, 1995; Srithongrung, 2008). Though these accumulated studies contributed to understanding infrastructure budget and finance and to expansion of knowledge, efficiency and effectiveness that are the most important values of Public sector have not sufficiently discussed.

             No small number of people wrongly think efficiency and effectiveness are not compatible, because they could think efficiency is a definition of cost reduction and effectiveness is about enhancing quality. However, this study would argue that the two significant values are likely harmonious each other. Thus, the proposed study will try to develop definitions of the two values theoretically and measurement of them, employing highway infrastructure cases. Reflecting the previous literature, I will create effectiveness indicator with highway condition (e.g., IRI and PSR), safety, and other performance factors, and also measure efficiency with input and output factors by using Data Envelopment Analysis.

             To investigate the relation between efficiency and effectiveness that will be set as independent and dependent variables respectively, internal and external environment factors will be controlled with two stage regression model. At second stage, I will set expenditures and natural environment as internal and external factor of effectiveness, and spatial factor that likely affects road effectiveness due to its nature also controlled. At first stage, political factors (e.g., partisanship and ideology), fiscal institution (e.g., tax and expenditure limitation and budgeting rules), and financial condition (e.g., liquidity and capital assets) will be set as determinants of expenditures. In addition, median voter and interest group factors will controlled as external environment of government.

             The method of analysis for the proposed study is regression with spatial panel model with 14 years data, 2000-2013. Data sources would be from Highway Statistics, the Book of States, Comprehensive Annual Financial Report (CAFR), NASBO’s State Expenditure Report, etc. I conducted preliminary test with 2008 year data, including effectiveness estimated from road condition and safety factors; efficiency measured with length of lanes, vehicle miles traveled, and investment and maintenance expenditure; and population. The results indicates that there are positive relation between effectiveness and efficiency. Expected contribution of the proposed study is to expand theoretical discussion on the two values, to present how to measure values and to analyze the relation and determinants, and to make suggestions for practitioners who want improve effectiveness of infrastructure management and policy.