Productive Efficiency And Regulatory Reform: The Case Of Vehicle Inspection Services

Measuring productive efficiency provides information on the likely effects of regulatory reform. We present a Data Envelopment Analysis (DEA) of a sample of 38 vehicle inspection units under a concession regime with a homogeneous level of quality, which is enforced by a regional regulator, between the years 2000 and 2004. The differences in efficiency scores show the potential technical efficiency benefits of introducing some form of incentive regulation or of progressing towards liberalization. We also compute scale efficiency scores, showing that only units in territories with a very low population density operate at a sub-optimal scale. Among those that operate at an optimal scale, there are significant differences in size; the largest ones operate in territories with the highest population density. This suggests that the introduction of new units into the most densely populated territories (a likely effect of some form of liberalization) would not be detrimental in terms of scale efficiency. The firm’s identity seems to be a determinant of the distance to the efficiency frontier. Finally, we show that between 2002 and 2004, a period of high regulatory uncertainty in the sample’s region, technical change was almost zero. Regulatory reform should take due account of scale and diversification effects, while at the same time avoiding regulatory uncertainty.