Measuring allocative efficiency in cultural economics: The case of Fundacion Princesa de Asturias

Literature on Cultural Economics gives us some examples about how to measure technical efficiency. But there is a lack in the case of allocative efficiency analysis. Our aim is to fill this gap incorporating a methodology that analyzes both technical and allocative efficiency. We use the Shepard’s distance function, particularly suitable when we face non-profit firms or institutions that are not interested in cost minimization. As an empirical application, we analyze the efficiency of Fundación Princesa de Asturias (PAF), a Spanish non-governmental organization devoted to promote cultural, scientific and humanistic values of universal heritage, during the period 1988-2012. Our findings suggest that PAF could have use 7% less inputs to achieve the same level of outputs. On the other hand, there is no allocative efficiency. Other expenditures input has been over-utilized related both to labor and current assets inputs, and labor has been over-utilized related to current assets. Moreover, our results indicate that both technical and allocative efficiency have clearly improved during the analyzed period. In summary, our empirical application shows how distance function methodology can be successfully implemented to measure allocative efficiency in cultural firms and institutions.