Optimization and analysis improvement in presence of rational inefficiencies: evaluating the performance in public finance

For a long time, theory and practice of efficiency measuring in public finance are devoted to “measuring expenditure efficiency”, “measuring tax collection efficiency” and “measuring public sector productivity” separately. Each of them has their own special results and each study produces a set of inefficiency scores for some inefficient units. To what extend this kind of concluding is challengeable? Why we do not think about aggregating all of mentioned topics under one model and measurement? These questions are important due to the fact that a public finance researcher can rationalize some inefficiencies under the theory of “rational inefficiency” and not regard it as waste, but the underlying methodology does not allow this possibility. In fact, we are seeking for a multipurpose theoretical framework be able to decompose inefficiency into X-inefficiency and rational inefficiency in the public finance decision making and simultaneously guarantee the fiscal sustainability.
Evaluating the performance of public finance using “production functions” or “cost functions” by traditional parametric or non-parametric methods has resulted in some cliché policy recommendations like cutting expenditures or increasing taxes. This kind of measurement, however, leaves out other aspects of the public sector performance like rational inefficiency choices. They also suffer from shortcomings including “sub-optimal decision procedures”, model mis-specifications”, “exogenous functions or exogenous components of the models” and so on.
The propsoed project will take some main steps to improve the above-mentioned process: the first pace would be expanding the theory of rational inefficiency in the public finance literature. The second step would be proposing an integrated theoretical framework which contains appropriate objective functions and consistent constraints for an improved optimization. We will go beyond the production or cost functions and, using some appropriate theories like Duality theory, will propose an optimization based on the welfare and growth functions. This transfers a modern optimization approach from the enriched efficiency-measuring in private finance to poor efficiency-measuring in public finance.