Declared versus revealed yardstick competition: local government efficiency in Norway

This paper investigates whether the efficiency of Norwegian local governments – measured by the index of efficiency developed in Borge, Falch and Tovmo (2001; 2005) – exhibits a spatial pattern that is compatible with inter-governmental strategic interaction originating from yardstick competition. Moreover, in order to test whether yardstick competition is really responsible for the observed spatial interdependence, and to rule out alternative theoretical explanations, the paper exploits unique information from a survey on Norwegian local governments, where local public officials are explicitly asked whether they compare their own performances to those of other governments. Merging the latter information – “declared” yardstick competition – with the observed interdependence in local efficiency measures – “revealed” yardstick competition – the paper provides further evidence on whether comparative performance evaluation reflects itself into spatial auto-correlation in local performance indicators.