José A ; García

Explaining differences in efficiency: an application to Spanish municipalities

Keywords: L33 -Public versus Private Enterprises, Privatization &lt, L3 -Nonprofit Organizations efficiency, municipal services, data envelopment analysis efficiency -municipal services -data envelopment analysis JEL: H72, L33, R50

Explaining differences in efficiency: an application to

Spanish municipalities

This paper investigates efficiency in the municipal sector of the Region of Murcia (Spain). With that aim, data of 31 municipalities (69% of the response rate) have been collected. Services analyzed are: police, culture, sports, green areas, refuse collection and water supply. Ratios of efficiency have been related to other control variables, such as economic level, size of the municipality, decentralization, political sign and financial situation. A weak positive relation between economic level and efficiency arises. Some weak evidence also exists that public management of refuse collection is more efficient than private. In water supply, public management by means of a company controlled by the local government is clearly more efficient than private. It also seems that the higher the tax burden, the greater the efficiency in providing services.

Introduction

At the present time there is a clear concern in the developed countries about the improvement of effectiveness and efficiency in public sector activities. This is a consequence, on the one hand, of the demand of more and better public services and on the other hand, of the limitations on public incomes and indebtedness. In this respect, the Monetary Union in the European Community has established that all the participating member states must achieve the budgetary stability. These provoked that the Spanish government enacted the General Law of Budgetary Stability, 18/2001, 12 December 2001. These Law obliges the public sector and different agencies (Central Government, Autonomous Communities, Local Authorities, Social Security, and owned public companies) to close their books in balance. Deficit is only contemplated in exceptional circumstances and this law gives legal expression to the balanced budget principle to carry out the budget balance and economic growth.

Public management analysis has been receiving more and more attention. On the one hand, the available amount of government resources is limited: rising taxes is politically costly, and there are legal limitations to increasing indebtedness. On the other hand, there is a growing demand for public services. Therefore, the public sector is bound to boost its efficiency in order to provide more services (output) restricted to a limited amount of resources (input).

Once the need to evaluate the public sector is stated, methodologies for this analysis have been developed. Among them, we can emphasize the Data Envelopment Analysis (DEA), as the mathematical technique internationally accepted by the literature. This methodology has been successfully applied to public services provided by municipalities of several Spanish regions (Diez-Ticio et al., 2000;[START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF] [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF][START_REF] Prieto | Evaluating effectiveness in public provision of infrastructure and equipment: The case of Spanish municipalities[END_REF][START_REF] Balaguer | On the determinants of local government performance: A two-stage nonparametric approach[END_REF][START_REF] Giménez | Long-and short-term cost efficiency frontier evaluation: Evidence from Spanish local governments[END_REF].

The implementation of techniques of management efficiency analysis is essential. In this way, the Spanish Public Administration (Intervención General de la Administración del Estado, IGAE, 1997) has made great efforts in the measurement of objectives achievement (with the development of specialized software). Similar efforts have been developed in other highly developed countries (Australia, Denmark, Finland, Norway, Sweden and Switzerland) 1 .

In an international scope, it is worth to mention the case of the United States. In this country, Governmental Accounting Standards Board (GASB) has issued documents providing the methodology for the municipalities to calculate and disclose efficiency indicators [START_REF] Fountain | Service Efforts and Accomplishments Measures[END_REF]GASB, 1990GASB, , 1994)). In addition, GASB has promoted the establishment of standardized municipal efficiency indicators that allow both the comparison between different municipalities and the analysis of the evolution of the efficiency in one municipality. Likewise, in Spain, the Association of Accounting and Business Management (Asociación Española de Contabilidad y Administración de Empresas, AECA) issued a document entitled "Management Indicators for Public Organizations", becoming a guide for Public Organizations to implement management indicators in order to evaluate effectiveness, economy and efficiency. In this document, DEA methodology is acknowledged as an appropriate technique to make this evaluation (pp. 78-80). This document has been complemented by another one entitled "A System of Management Indicators for Municipalities", which describes a list of indicators to be used to evaluate municipal management.

Furthermore, it shows a set of rules, characteristics and methodological guidelines to ensure the quality of these indicators.

1 For an insight on these countries' projects, see [START_REF] Joumard | Enhancing the effectiveness of public spending: experience in OECD countries[END_REF] [START_REF] Navarro | El control económico de la gestión municipal. Un modelo basado en indicadores[END_REF][START_REF] Ortiz | Los indicadores como instrumentos para la evaluación de la gestión pública. Una investigación empírica en el ámbito municipal[END_REF][START_REF] Giménez | Frontier Evaluation and Cost Efficiency Decomposition. An application to the councils of Catalonia[END_REF] have already developed efficiency analysis projects.

In the Spanish health system [START_REF] Pina | Evaluating the Efficiency of Nonprofit Organizations: An Application of Data Envelopment Analysis to the Public Health Service[END_REF][START_REF] Pina | Evaluating the Efficiency of Nonprofit Organizations: An Application of Data Envelopment Analysis to the Public Health Service[END_REF][START_REF] García | Evaluation of Efficiency in Primary Health Care Centres: An Application of Data Envelopment Analysis[END_REF] DEA methodology is being successfully applied in the last years. In this way, the Region of Murcia 2 has already developed several projects that have allowed it to improve efficiency levels. These projects have become essential to provide useful information to the political decision making.

The problem of the measurement of inputs/outputs, that in the private sector is relatively simple, gets complicated in the public sector, because of the difficulty to establish these parameters. As a result of this, a number of works have been devoted to establish and validate efficiency indicators in the public sector in general. For example, [START_REF] Navarro | El control económico de la gestión municipal. Un modelo basado en indicadores[END_REF], [START_REF] Ortiz | Los indicadores como instrumentos para la evaluación de la gestión pública. Una investigación empírica en el ámbito municipal[END_REF] and AECA (2004) In Spain, we can highlight the works of Vilardell (1998); Diez-Ticio et al. (2000); [START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF]; [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF]; [START_REF] Prieto | Evaluating effectiveness in public provision of infrastructure and equipment: The case of Spanish municipalities[END_REF][START_REF] Balaguer | La eficiencia en las administraciones locales ante diferentes especificaciones del output[END_REF], [START_REF] Balaguer | On the determinants of local government performance: A two-stage nonparametric approach[END_REF] and [START_REF] García-Valiñas | Is DEA useful in the regulation of water utilities? A dynamic efficiency evaluation (a dynamic efficiency evaluation of water utilities)[END_REF].

Our [START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF]; Worthington (2000); [START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF]; and [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF].

From our point of view, our results are relevant not only for politicians, public managers and researchers, but also for the citizens. The latter, as taxpayers and recipients of municipal services, on the one hand, demand information about LG activities and on the other, request improvement of LG performance.

DEA is a technique based on linear programming, used to measure the relative activity of organizational units when there are multiple resources (inputs) and multiple results (outputs). A great variety of applications of DEA have been developed to evaluate the activity of diverse types of organizations from different sectors in several countries.

One of the reasons of the broad use of DEA could be the problems faced by other approaches because of the complex (often unknown) nature of the relationships between resources and results of these activities.

DEA analysis has also been applied to provide new approaches about activities (and organizations) that had previously been evaluated using other methods.

input output

Usually this ratio is used in order to assess the organizations' efficiency.

Productivity measures also assume ratio form when they are used to evaluate the activity of workers: sales per worker, units made by worker and hour, etc. These measures we can be referred to more exactly as partial productivity measures, in order to distinguish them from measures of total productivity of the factors. The latter try to obtain a similar ratio, but they take into account simultaneously all the resources (inputs) and all the results (outputs).

One of the advantages of DEA is that it does not require a previous specification of the weights of each input/output. Furthermore it does not require assumptions about the form of the production function, which are so common in statistical regressions and in many other circumstancies. That is why relationships between variables are evaluated by means of bivariate statistical tests. Eventually, since it uses mathematical programming techniques, it is able to handle a high number of variables and relationships (restrictions).

Thus, DEA is usually used in the evaluation of the efficiency of a certain number of producers, comparing each one of them only with the best producers.

Unlike usual statistical approaches evaluating units in reference to their average, DEA is a method of extreme point, defining a border where efficient units are located.

Inefficiency is established in relation to this efficiency border.

A common measurement of relative efficiency is: As an initial assumption, this measurement needs a common set of weights to be applied to all the analysed units. Two problems arise when it comes to reach an agreement to obtain this set of weights: on the one hand, the difficulty to measure inputs and outputs and, on the other hand, the allocation of weights itself, which is a controversial process because of its subjectivity. Accordingly, this measurement of the efficiency with a common set of weights does not seem correct.

According to [START_REF] Charnes | Measuring the Efficiency of Decision Making Units[END_REF], our analysis allows each unit to establish its own set of weights, in order to reach the most favourable combination in comparison with the rest of the units. Thus, the efficiency of the unit (j 0 ) can be obtained by solving the following problem:

To maximize the efficiency of unit j 0 , conditional to that the efficiency of all the units is 1.

The unknown quantities of this problem are the weights, and the solution shows on the one hand, the most favourable weights to the unit, and on the other, the efficiency measurement of each unit.

The mathematical model is as it follows:

= = i r i ij i r rj r i ij i r rj r v u x v y u t s x v y u Max , ) (1,2,....N j 1 . . h 0 0 0
Where y rj and x ij represent outputs and inputs of unit j respectively. The variables of the problem are u r and v i (weights). These latter are supposed to be greater or equal The solution to this problem yields a value of h 0 between 0 and 1, which is a measurement of the relative efficiency of unit j 0 . If h 0 = 1, then unit j 0 is efficient in relation to the other units, and if h 0 <1, other units are more efficient than j 0 . This flexibility in the election of the weights means at the same time a weakness and strength of DEA. It is a weakness because a correct election of weights of a unit (it is likely that this choice is not related to values of inputs and outputs) may allow this unit to appear as efficient. However, this efficiency may have to do more with the election of weights than with its inherent efficiency. Simultaneously, it is a strength since if one unit is inefficient, it is so with the most favourable set of weights. Thus, the argument that the inefficiency is due to incorrect weights is not acceptable.

In our DEA analysis, variable returns to scale (Models BCC) and output oriented models (output orientation) have been considered, that is to say, aimed at maximize the results with a given level of resources4 .

Revision of Literature

Economic level and tourist character

Some authors show that the greater the economic level of the LG and therefore the greater the income it collects, the less pressure exists on LG politicians and managers in order to reach efficiency in the provision of municipal services [START_REF] Spann | Public versus private provision of governmental services[END_REF][START_REF] Silkman | X-Efficiency and state formula grants[END_REF]. In a similar way, De Borger and Kerstens (1996) find that greater economic level is linked to more inefficiency. However, [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF] analyse the impact of municipal economic level on efficiency. They conclude that differences in economic level are not significant when evaluating efficiency. With regard to the tourist character of the LG, some authors [START_REF] Mathieson | Homicide and Robbery in New York city: an economic model[END_REF][START_REF] Díez-Ticio | Análisis de la eficiencia de las institituciones encargadas de la seguridad ciudadana[END_REF] explain that seasonal populations have an impact on municipal services, specifically on police (which is one of the services this paper evaluates). The argument is based on two points. On the one hand, the more stable the population is, the narrower the relationship with police is expected, leading to a greater collaboration to solve problems arising in the neighbourhood. On the other hand, population variability means a lower identification of the people with their place and, consequently, a smaller concern about collective problems.

If we take a look at other works investigating the tourist condition of municipalities, we see there is not agreement in the literature. [START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF] find that tourist level of the LG has an impact on efficiency. On the contrary, [START_REF] Bel | Un análisis de los gastos municipales por el servicio de residuos sólidos urbanos[END_REF] concludes that tourist activity is not significant when it comes to assessing the efficiency of municipalities of Cataluña (Spain).

Size of the Local Government

With respect to police, Díez-Ticio and Mancebón (2003) state a negative link between

LG size and police efficiency. They argue that an increase in the territory reduces intensity of the patrol services. On the other hand, the greater the population is, the greater the dedication to more responsibilities is, and accordingly the less efficiency in the provision of the service appears [START_REF] Carr-Hill | Crime, the Police and criminal statistics[END_REF][START_REF] Darrough | Law enforcement agencies as multi-product firms: an econometric investigation of production cost[END_REF][START_REF] Gyimah-Brempong | Elasticity for factor substitution in police agencies[END_REF]1989;[START_REF] Cameron | Police cost function estimates for England and Wales[END_REF].

Regarding the service of refuse collection, [START_REF] Stevens | Scale, market structure, and the cost of refuse collection[END_REF], [START_REF] Dubin | How markets for impure public goods organize: The case of household refuse collection[END_REF] and [START_REF] Callan | Economies of scale and scope: A cost analysis of municipal solid waste services[END_REF] also find greater efficiency in municipalities with smaller population. Nevertheless, for the same service, [START_REF] Kitchen | A statistical estimation of an operating cost function for municipal refuse collection[END_REF] finds economies of scale while LG size increases up to 324.000 inhabitants 5 .

Considering the global efficiency of the LG, [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF], find that greater population is linked to higher inefficiency in a sample of Spanish LG. De 5 Which is very similar to the size of greater LG of the sample, Murcia.

Public vs. private management

Although being an old discussion, private vs. public and in-house vs. out-house management comparisons have become quite fashionable in the last decades due to New Public Management reforms. Although a "magic recipe" for achieving efficiency in public services is far to be unambiguously stated, we think it is interesting to add more evidence on this issue to the literature. So far, the majority of the DEA studies have focused on investigating whether the public service is more efficiently provided by the LG or by private companies. There is not agreement in the literature [START_REF] Lovell | Eficiencia y productividad en el sector público. Temas dominantes en la literatura[END_REF][START_REF] Lovell | Eficiencia y productividad en el sector público. Temas dominantes en la literatura[END_REF][START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF], make a very complete revision of these works). [START_REF] Tang | Efficiency of the private sector: a critical review of empirical evidence from public services[END_REF], in a revision of previous literature, finds that private management is more efficient in refuse collection, cleaning, residual water treatment and fire-fighting services. Nevertheless, in water supply and railroads results are not conclusive.

Political sign

The political-economic literature supports the thesis that "partisan politics matters", i.e., that ideology matters in public sector management and performance [START_REF] Cusack | Partisan politics and public finance: Changes in public spending in the industrialized democracies 1955-1989[END_REF]. However, empirical findings are not totally conclusive, specially at the municipal level. For instance, [START_REF] Abizadeh | Provincial Government Spending in Canada: An Empirical Analysis[END_REF], [START_REF] Benito | The determinants of the municipal debt policy in Spain[END_REF] and [START_REF] Hagen | Political characteristics, institutional procedures and fiscal performance: Panel data analyses of Norwegian local governments, 1991-1998[END_REF] fail to prove a poorer performance of progressive municipal parties. All these works are connected with the so-called "convergence" school of thought, which argues that societies of the twentieth century have become increasingly similar, facing the same kind of problems and thus using the same kind of solutions. Consequently, political differences do not matter much when it comes to explain variations in policy outputs [START_REF] Skinner | Technological Determinism: A Critique of Convergence Theory[END_REF]Thomas, 1980). Likewise, other authors argue that over the last two decades partisanship differences have narrowed. (1993) do not find significant influence of the political sign of the incumbents. We think it is interesting to know if incumbents' political sign influences efficiency, as the "partisan politics matters" thesis assumes.

Financial constraints: fiscal burden, indebtedness, working capital

We define the fiscal burden as the proportion coming from taxes out of the total municipal income. At the outset, we assume that the greater fiscal burden is, the greater the demand by taxpayers for efficient provision of services will be [START_REF] Spann | Public versus private provision of governmental services[END_REF][START_REF] Davis | The demand for good government[END_REF][START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF]. However, it is not possible to predict the influence of indebtedness on the efficiency.

In a first approach, following Worthington (2000), we could argue that it will affect negatively. The greater the level of municipal indebtedness, the more resources will be devoted to attend debt payments. Thus, less resources will finance the provision of LG services (cultural, sports, etc.). [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF] argue that LG with financial problems are concerned about services efficiency improvement, which leads to obtain costs savings. We have considered the working capital as an indicator of the LG short term financial situation.

Sample and variables

The sample is composed by 31 municipalities of the Region of Murcia (69% of response rate and a population of 91% of the total population of the Region of Murcia). Our selection of outputs is based on the works of [START_REF] Navarro | El control económico de la gestión municipal. Un modelo basado en indicadores[END_REF] [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF][START_REF] Prieto | Evaluating effectiveness in public provision of infrastructure and equipment: The case of Spanish municipalities[END_REF]Taïrou, 2000;Vanden Eeckant et al., 1993). This makes us face a time lag due to the months

LG need to elaborate final budget reports. However, we think actual figures essential, since it is generally known that budget estimates overestimate incomes and underestimate expenditures. Eventually, when a public service is provided by a company, we use as inputs the corresponding information from their income statement (issued in accordance with the Spanish Chart of Accounts).

Out of the total initial input/output variables, table 1 shows inputs and outputs finally used to measure efficiency of each service. The selection has been made, on the one hand, for the sake of relevance, and on the other, considering its availability in the municipalities surveyed (i.e., minimum number of missing values). This is the reason why not all LG have been included in all the partial analyses, due to the lack of available data about variables for the analysis.

(Insert Table 1)

Focusing on each service, maximum efficiency is achieved by the following LG, ordered from minimum to maximum proportion of efficient LG: green areas 3/23 (13%), water supply 4/21 (19%), refuse collection 4/19 (21%), police 10/27 (37%), culture 9/23 (39%), sports 16/23 (70%). Green areas is the service where we find the lowest number of efficient LG. However, sports is a more homogeneous service, where 7 out of 10 LG achieves maximum level of efficiency (1).

As stated above, in order to investigate which characteristics of LG are related to efficiency, we have created several variables. Table 2 shows descriptive statistics of these variables.

(Insert

Next section investigates relationships between efficiency indicators and other

LG features. As we said above, relative efficiency has been calculated in different LG services (police, culture, sports, green areas, refuse collection and water supply).

Determinants of the efficiency

Economic level and tourist character

With respect to LG economic level, we do not find significant relationships (table 3).

Nevertheless, it is worth to mention that most of the correlations (70.83%) are positive, which gives idea that certain relationship exists between economic level and efficiency in the services. On the one hand, this lack of significance agrees with the work of [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF]. On the other hand, the positive sign of most of correlations seems to go against of [START_REF] Spann | Public versus private provision of governmental services[END_REF], [START_REF] Silkman | X-Efficiency and state formula grants[END_REF] and De Borger and [START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF], who postulated that the greater the economic level is, the higher the inefficiency is.

With regard to tourist level, in four out of the six services (66.67%), correlation is positive, although there is no statistical significance. We obtain the same result than [START_REF] Bel | Un análisis de los gastos municipales por el servicio de residuos sólidos urbanos[END_REF], and thus we cannot confirm the conclusions of [START_REF] Bosch | Measuring the efficiency of Spanish municipal refuse collection services[END_REF], [START_REF] Mathieson | Homicide and Robbery in New York city: an economic model[END_REF] and Díez-Ticio and Mancebón (2003) (these two latter works, regarding police service).

(Insert

Size of the LG

LG size, measured by its population6 , shows, in general, positive correlations with ratios of efficiency (see table 4). Only in police and refuse collection correlations are negative, although with a significance extremely reduced (0.73 and 0.97 respectively).

The only significant correlation appears in water supply, revealing economies of scale.

(Insert Table 4)

With respect to LG extension (sqkmext), in general correlations are also positive, except in culture and green areas, but significance is low.

Population density (density) is positively but weakly correlated with efficiency. The only significance arises in green areas, since the greater dispersion of the population makes maintenance services more difficult. In this service, our results confirm the work of De [START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF]. In conclusion, both predominance of positive correlations and low significance do not allow us to verify the conclusions obtained by [START_REF] Giménez | Evaluación frontera de la eficiencia en costes. Aplicación a los municipios de Cataluña[END_REF], who found that the greater the size of the LG, the greater the inefficiency.

Public and private management

Tables 5 to 9 depict efficiency measures of services depending on the form of management chosen by LG7 . In general, we do not find significant differences in efficiency according to the way of management used by the LG.

Furthermore, analysis of these tables reveals the pattern of municipal services provision in the Region of Murcia. In culture, sports and green areas, direct management predominates, i.e., the own LG provides the service. In terms of sample mean, in culture and green areas, this direct management is not more efficient than the other forms of management, although this conclusion must be taken with caution due (Insert Table 5) (Insert Table 6) (Insert Table 7)

With respect to refuse collection, [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF] show that, according to literature, private provision of refuse collection service is more efficient in general. In our case, although with low significance, we obtain some evidence making us think private management is not more efficient than public. Thus, we cannot confirm the work of [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF].

On the other hand, these authors show the percentage of city councils providing this service through private management in several countries: United Kingdom 30%, Ireland 39% and Netherlands 40%. In the case of Region of Murcia, this percentage is quite superior: 68.4% of LG decided to privatize the service.

(Insert Table 8)

In water supply, highly significant results demonstrate public management through a

LG-controlled company is more efficient than private management. This result is contrary to [START_REF] Tang | Efficiency of the private sector: a critical review of empirical evidence from public services[END_REF], who showed results in this service are not conclusive.

(Insert Table 9)

On the other hand, following [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF], we have divided management according to two classifications: in-house/out-house and public/private (see table 10).

(Insert Table 10)

Public management of refuse collection and water supply is more efficient than private management, though significance is not conclusive. [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF], in a In refuse collection, in-house management is also more efficient than out-house management. The fact that both in-house and public provision of refuse collection service are more efficient may be revealing the collusion effect pointed out by [START_REF] Dijkgraaf | Collusion in the Dutch waste collection market[END_REF]. Only two public companies (see table 8) do not enhance enough competence in the market, since they are ad-hoc companies that only provide the service for the parent LG.

Eventually, low significance places our results in line with previous literature, where lack of consensus is the outstanding note.

Political sign

The political sign does not have an influence on efficiency, according to results depicted in table 11. In particular, aside from the shortage of significance, the efficiency is evenly distributed, i.e., in police, sports and refuse collection, progressive parties reach greater efficiency, whereas in the remaining three services, greater efficiency is achieved by conservative parties. This feature confirms the work of Vanden Eeckaut et al. (1993).

(Insert Table 11)

Fiscal effort, indebtedness and financial situation

There are some works assessing the incidence of financial variables in Spanish LG; for example, [START_REF] Benito | The determinants of the municipal debt policy in Spain[END_REF] find that non-financial surplus/deficit, financial independence, capital expenditures, and capital revenues are the variables that best explain the level of indebtedness in this type of entities; and [START_REF] Monasterio | Local government financing and borrowing: Spain[END_REF] and [START_REF] Cabasés | The effectiveness of institutional borrowing restrictions: Empirical evidence from Spanish municipalities[END_REF] study the effectiveness of institutional borrowing restrictions in Spanish municipalities.

Our data show that tax burden imposed to citizens, measured by taxburdrev, is connected to a greater efficiency in services in general, although significance 12). This result confirms works of De [START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF], [START_REF] Spann | Public versus private provision of governmental services[END_REF] and [START_REF] Davis | The demand for good government[END_REF].

(Insert Table 12)

Regarding the debt position of the LG, Worthington (2000) argues that greater debt service (lrdebtpc) results in shorter resources for services provision and thus efficiency decreases. Nevertheless, our results indicate that all correlations are positive except one, and although they are not significant, show a clear tendency. Maybe the explanation in this case is that greater indebtedness is the result of past capital investments that allow now a greater efficiency.

Short term financial situation of the LG, measured by its working capital (wcapitalpc), presents ambiguous relations with services efficiency. For this reason our data cannot confirm the work of [START_REF] Dijkgraaf | Contracting out refuse collection[END_REF], who argue that financial stress forces municipal managers to improve efficiency of the services as a way to obtain cost savings.

Conclusions, limitations and further research

This paper investigates the relative efficiency of a list of 6 services in the municipalities of the Region of Murcia (Spain), by means of DEA methodology: police, culture, sports, green areas, refuse collection and water supply. In a second phase, efficiency indicators obtained have been related to other municipal variables of control, evaluating in this way the determinants of the public efficiency.

With respect to the economic level of the LG, we do not find significant relationships.

Nevertheless, it is worth to emphasize that most of correlations (70.83%) are positive, which gives idea of some relationship between economic level and efficiency.

Regarding tourist level, in four out of the six services (66.67%), correlation is positive, although no statistical significance is found.

The size (population) of the LG reveals, in general, positive correlations with efficiency ratios. Only in police and refuse collection correlations are negative, In water supply, highly significant results demonstrate public management through a company controlled by the LG is more efficient than private management. However, according to our results, private vs. public and in-house vs. out-house management comparisons, which have become very fashionable due to New Public Management reforms, are not clear.

Political sign does not influence efficiency. In particular, aside from the lack of significance, efficiency is evenly distributed, i.e., in three services progressive parties reach greater efficiency, and in the remaining three, the opposite pattern takes place.

This result supports the so-called "convergence" school of thought, which argues that industrialised societies of the twentieth century have become increasingly similar, facing the same kind of problems and thus using the same kind of solutions.

Consequently, political, institutional and cultural differences do not matter much when it comes to explain variations in policy outputs [START_REF] Skinner | Technological Determinism: A Critique of Convergence Theory[END_REF]Thomas 1980).

Fiscal effort from the tax payers is connected with a greater efficiency in the services in general, although significance only appears in water supply. This is good news for citizens, who have the right to demand value for money to the managers of their taxes.

On the other hand, short term financial health of the LG, measured by its working capital, shows ambiguous relations with services efficiency. Our work has the limitation of having focused on a Spanish Region and thus the sample is not very large. Nevertheless, on the one hand, the response rate is very high 69%. On the other, inputs and outputs have been thoroughly selected and provide extremely accurate data. Direct interviews were carried out with the participants to check the data in detail. This meticulousness is hard to achieve if a large and disperse sample of LG is considered.

  develop a battery of useful indicators for several municipal services, such as: police, culture, sports, green areas, housing, fire-fighting services, refuse collection, water supply and cleaning, street lighting, general services and financial, economic and budgetary management. Some of these services are investigated in this paper.The paper is organized as follows. Section 2 provides a detailed description of the research objective and methodology. Section 3 reviews previous literature on evaluation of municipal management. Section 4 describes the sample of municipalities and the inputs/outpus used in the empirical research. Besides, it presents the variables that are going to be related with efficiency indicators. Section 5 examines relationships among variables. Finally, section 6 summarizes conclusions, presents limitations and proposes further research. 2 In terms of surface area the Region of Murcia is the ninth largest of the Spanish autonomous communities and lies at the centre of the Spanish Mediterranean coastal arch. According to the most recent census figures (1 January 2005) the Region of Murcia has a population of 1,335,792 inhabitants. So far, few works have focused on the evaluation of municipal efficiency. However, a great number of works have analyzed other sectors such as education or health. We think the main reasons lie, on the one hand, in the problems faced when trying to collect municipal data, and on the other hand, on the troubles arising in the measurement of public outputs. From the perspective of the municipal management we can emphasize the contributions made by Vanden Eeckaut et al. (1993); De Borger et al. (1994) and De Borger and Kerstens (1996), who analyze the Belgian experience of municipal efficiency evaluation; Worthington (2000), who evaluates by means of econometric techniques and linear programming the efficiency of local governments (LG) in Australia; Taïrou (2000), who evaluates the efficiency of the French municipalities from the point of view of its financial condition; Waldo (2001), who investigates local administration efficiency in Sweden; Hollingsworth et al. (2002), who assess the cost and production efficiency of local government programs for childhood immunization in urban and rural settings in Australia; Sampaio and Stosic (2005), that estimate the DEA technical efficiency for 4796 Brazilian municipalities; and Loikkanen and Susiluoto (2005), who study the cost efficiency of basic welfare service provision in 353 Finnish municipalities in 1994-2002.

  the organizations' activity can be tackled through a variety of indicators. Some of them are established as a quotient:

  small positive amount, in order to prevent some input or output from being totally ignored in the efficiency assessment.

  (1996) also find that lower population density leads to greater inefficiency.

  and economic integration, partisan preferences have become less important in implementing public policies. This could explain that there is only mixed empirical evidence of the "partisan politics matters" thesis.Few works focus on the impact of political factors on LG efficiency. De Borger and[START_REF] De Borger | Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches[END_REF] conclude that socialist party participation in government coalitions of Belgian LG means higher degree of efficiency than liberal party participation. De Grauwe (1985) drew a similar conclusion. On the contrary, Vanden Eeckaut et al.

  of significance. However, sports management by the LG seems more efficient (in terms of sample mean).

  on refuse collection efficiency, concluded that almost all works find private provision more efficient.

  *0.002) only appears in water supply (table

  extremely reduced significance. The only one significant correlation takes place with water supply, revealing the existence of economies of scale in this service. With respect to extension of the LG (km 2 ), in general correlations are also positive, except in culture and green areas, but significance is low.Population density is correlated positive, but weakly, with efficiency. The only significance appears in green areas, since the greater population dispersion hinders the maintenance of green areas

  Regarding indebtedness, the correlations are positive, except in a service (refuse collection), and although they are not significant, indicate a clear trend. Perhaps the case is that greater indebtedness in the last years financed investments that allow now a greater efficiency.

  Further research is needed to broaden the scope of services analysed. Besides, repeating the survey year after year would enhance comparisons and allow investigating the evolution of LG efficiency. Finally, further input and output indicators should be developed and tested.

  of domestic refusal collected Number of tons of industrial or commercial refusal collected Number of industries, commercial establishments and houses in which refuse is collected daily

  ;

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Table 2 )

 2 Variables econlevel and tourindex were drawn from LaCaixa (2004). Variables iecon_00, isbie_00 and rfdpc_00 correspond to 2000 (latest available data). Variables population and sqkmext are available in the Spanish National Institute of Statistic web page. Polsign comes from Ministry of the Interior web page. The web page of the General Department of Territorial Finances provides data of municipal budgets, needed to calculate taxburdrev. The Local Administration Department of the Region of Murcia provides data to create variables lrdebtpc and wcapitalpc (available as of 31.12.2001).

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Table 3 )

 3

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Table 2 .

 2 Descriptive statistics of variables

	variable	Description	N	Minimum	Maximum	Sum	Mean	St. dev.
	econlevel	economic level 2002	31	2.00	5.00	111.00	3.58	0.77
	iecon_00	CES 8 study 12, table 3.3	31	2.00	5.00	103.00	3.32	0.75
		economic index
	isbie_00	CES study 12, table 3.3.
		synthetic index of well-	31	2.00	5.00	104.00	3.35	1.05
		being
	rfdpc_00	CES study 12, table 2.2.
		familiar available gross income per capita	31	6.99	9.07	245.15	7.91	0.57
		(thousand euros)
	tourindex	tourist index: 0 no	31	0.00	592.00	1,228.00	39.61	116.56
		tourism; 592 maximum
	population total population	31	5841	377,888	1,118,283	36,073.65	71,939.32
		31.12.2002
	sqkmext	extension of the LG, km 2	31	10.00	1,675.00	9,297.00	299.90	374.48
	density	population density: total
		population	31	9.01	2,187.31	9,382.77	302.67	444.24
		31.12.2002/km 2
	polsign	political sign of municipal
		government: 0_left wing;	31	0.00	1.00	19.00	0.61	0.50
		1_right wing
	taxburdrev Tax burden over revenues
		(taxes/total revenues	30	0.14	0.60	13.00	0.43	0.11
		2002)
	lrdebtpc	long run debt per capita
		31.12.2001 (thousand
		pesetas; 1€ = 166.386	31	11.20	105.85	1369.47	44.18	22.29
		pesetas)
	wcapitalpc Working capital per capita
		31.12.2001 (thousand	31	-120.41	26.72	-147.34	-4.75	26.03
		pesetas)

8 CES: Economic and Social Council of Region of Murcia.

Table 3 .

 3 Economic and tourist level 9

				Economic level		Tourism
			econlevel	iecon_00	isbie_00	rfdpc_00	tourindex
	Police	Corr. coeff.	-0.04	0.15	0.05	0.04	0.04
		Sig.	0.80	0.35	0.75	0.76	0.76
	Culture	Corr. coeff.	-0.03	0.08	-0.03	0.03	-0.02
		Sig.	0.86	0.67	0.89	0.83	0.91
	Sports	Corr. coeff.	0.26	0.27	0.23	0.25	0.15
		Sig.	0.17	0.16	0.22	0.13	0.38
	Green areas	Corr. coeff.	0.02	-0.08	0.15	0.00	0.01
		Sig.	0.91	0.62	0.38	0.98	0.96
	Refuse collection	Corr. coeff.	-0.08	-0.01	-0.06	0.04	-0.04
		Sig.	0.68	0.94	0.74	0.81	0.83
	Water supply	Corr. coeff.	0.24	0.10	0.25	0.10	0.09
		Sig.	0.18	0.58	0.15	0.54	0.56
	Tau_b de Kendall. Bilateral significance: * 10%, ** 5%, *** 1%.

Table 4 .

 4 Size of the LG

			lnpopulation	sqkmext	density
	Police	Corr. coeff.	-0.05	0.05	0.06
		Sig.	0.73	0.73	0.70
	Culture	Corr. coeff.	0.15	-0.01	0.09
		Sig.	0.33	0.94	0.59
	Sports	Corr. coeff.	0.25	0.01	0.24
		Sig.	0.13	0.95	0.15
	Green areas	Corr. coeff.	0.03	-0.20	0.27
		Sig.	0.85	0.19	* 0.08
	Refuse collection	Corr. coeff.	-0.01	0.25	-0.14
		Sig.	0.97	0.14	0.42
	Water supply	Corr. coeff.	** 0.35	0.14	0.14
		Sig.	0.03	0.38	0.40
	Tau_b of Kendall significance: * 10%, ** 5%, *** 1%.

Table 5 .

 5 Culture: management forms

	Culture

Page 31 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

Table 6 .

 6 Sports: management forms

	Sports

Table 7 .

 7 Green areas: management forms

	Submitted Manuscript
	Green areas			Efficiency
	Form of management	N Minimum Maximum	Mean	St. dev.
	Direct management (own LG)	16	0.01	1.00	0.32	0.35
	Public company 51% controlled by LG	3	0.42	0.69	0.57	0.14
	Private company	4	0.05	0.17	0.11	0.05
	Significance ANOVA (* 10%, ** 5%, *** 1%): 0.182.

Page 33 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

Table 8 .

 8 Refuse collection: management forms

	Submitted Manuscript
	Refuse collection			Efficiency
	Form of management	N	Minimum Maximum	Mean	St. dev.
	Direct management (own LG)	4	0.63	1.00	0.89	0.18
	Public company 51% controlled by LG	2	0.57	0.99	0.78	0.30
	Private company 10% controlled by LG	1	0.45	0.45	0.45	.
	Private company	12	0.33	1.00	0.65	0.24
	Significance ANOVA (* 10%, ** 5%, *** 1%): 0.271.

Page 34 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

Table 9 .

 9 Water supply: management forms

	Water supply			Efficiency
	Form of management	N Minimum Maximum	Mean	St. dev.
	Public company 51% controlled by LG	4	0.71	1.00	0.90	0.14
	Private company	16	0.12	1.00	0.44	0.25
	Significance Mann-Whitney (* 10%, ** 5%, *** 1%): 0.014 **

Page 35 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

	Submitted Manuscript
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Table 10 .

 10 In-house/out-house and public/private management

		Way of management (efficiency mean)
	Service	In house	Out house	Public	Private
	Culture	0.75	0.80	0.76	.
	Sports	0.87	0.79	0.84	.
	Green areas	0.32	0.31	0.35	0.11

Table 11 .

 11 Political sign

		Submitted Manuscript
			Progressive		Conservative
		N	Mean	St. dev.	N	Mean	St. dev.
	Police	11	0.72	0.31	16	0.61	0.33
	Culture	10	0.74	0.28	13	0.77	0.20
	Sports	9	0.89	0.25	14	0.82	0.28
	Green areas	8	0.26	0.32	15	0.34	0.33
	Refuse collection	5	0.79	0.25	14	0.68	0.24
	Water supply	9	0.51	0.21	12	0.54	0.35
	Significance Mann-Whitney: * 10%, ** 5%, *** 1%.

Page 37 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

Table 12 .

 12 Budget and financial variables

			taxburdrev	lrdebtpc	wcapitalpc
	Police	Corr. coeff.	0.00	0.01	0.06
		Sig.	1.00	0.93	0.67
	Culture	Corr. coeff.	-0.15	0.16	0.28
		Sig.	0.33	0.30	* 0.07
	Sports	Corr. coeff.	0.16	0.11	0.12
		Sig.	0.33	0.51	0.47
	Green areas	Corr. coeff.	0.04	0.14	-0.14
		Sig.	0.77	0.36	0.36
	Refuse collection	Corr. coeff.	0.03	-0.08	-0.05
		Sig.	0.86	0.65	0.75
	Water supply	Corr. coeff.	*** 0.50	0.20	-0.09
		Sig.	0.00	0.20	0.59
	Significance Tau_b de Kendall: * 10%, ** 5%, *** 1%.

Page 38 of 38 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

The questionnaire was sent to all LG financial managers of the Region of Murcia on 15 June 2004. The reception of questionnaires finished on 31 May 2005.

The application used to solve the mathematical problem has been DEA-Solver-LV developed byCooper et al. (2000) on Microsoft Excel.

Neperian logarithm of the number of inhabitants (lnpopulation).

In this section, police service was excluded, since according to Spanish laws, it must be provided directly by the LG.

Taïrou, A.A. (2000) Does inefficency explain financial vulnerability of French municipalities?. Paper presented to International Conference on Accounting, Auditing

We must note the limitation stemming from variables iecon_00, isbie_00 and rfdpc_00, which refer to year 2000, being the latest available data.

ACKNOWLEDGMENTS

This paper benefited from comments received at the 2006 International Conference on Regional and Urban Modeling (Brussels). We acknowledge the financial support of the Fundación Séneca, Autonomous Government of the Region of Murcia (PPC/01491/03).

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript


Lisa Farrell

David Forrest
email: d.k.forrest@salford.ac.uk

Measuring Displacement Effects across Gaming Products: A Study of Australian Gambling Markets

Keywords: gambling, panel data, fixed effects Gambling, Panel Data, Fixed Effects. JEL Classification: L83

This paper seeks to establish the extent of displacement effects across gaming products. This is a particularly difficult question to address with precision. To date, many studies have looked at policy changes such as the introduction of a new product into the market to assess the severity of displacement effects. However, simple before and after comparisons are invalid. One needs to know what the appropriate counterfactual would have been in the absence of the policy change -which by its very nature is unobservable. The alternative is to look at identical populations exposed to different regimes. Australia represents such a natural experiment. In Australia, Betting and Gaming legislation is determined at the state level, giving rise to some interesting differentials across states within a single country. This paper estimates a state level (fixed effects) panel data model, exploiting the intra-state differences in the portfolio of gaming products available, to estimate the extent of displacement effects across the gaming sector. The results are particularly relevant to the current UK policy debate which is focused on the potential impact on the existing market following a forthcoming, radical deregulation of the industry (with further liberalisation proposed).

The market place for gaming products is an innovative environment. Increasing knowledge of players' tastes and changing technology has lead to increasing product diversity and many jurisdictions across the world have permitted or are considering legalising casinos and high prize machine gaming for the first time. This paper will examine the impact of these new forms of gaming on one particular product in the gambling sector, namely lotto. That is, we seek to establish the extent of displacement effects on lotto games from new entrants into the gaming market, utilising data from a panel of Australian states. Lotto is our focus because in many jurisdictions it has a special status in that it funds important causes, for example student scholarships in Florida and sports and arts provision in the United Kingdom.

To date, a number of studies have looked at policy changes, such as the introduction of a new product into the market, to assess the severity of displacement effects on existing gaming products. However, simple before and after comparisons are invalid. One needs to know what the appropriate counterfactual would have been in the absence of the policy change -which by its very nature is unobservable. The alternative is to look at identical populations exposed to different regimes. Australia represents such a natural experiment. In Australia, betting and gaming legislation is determined at the state level giving rise to some interesting differentials across states within a single country.

Australia provides an ideal setting within which to investigate issues relating to displacement effects given the range of different products introduced at different times by different state governments. It is clear that multiculturalism and diversity exists within Australia which makes direct policy prescriptions difficult; but this does not necessarily imply that countries cannot learn from each others' experiencescommonalities also exist which can be exploited in order to draw sensible policy recommendations. In many respects Australia is the perfect 'laboratory' for work on this topic -the complexity of gaming regulation, variation in the social acceptance of that are important for this kind of analysis. In addition, Australia has a richness of data regarding betting and gaming revenue to surpass most other countries.

The Australian case is particularly relevant to the ongoing debate on the reform of gambling law in Britain, in particular to controversy over the extent to which modern casino style gaming should be permitted. Until now, Britain's casinos have borne little similarity to the international model. They are members' clubs focussed on table games with only ten gaming machines permitted and with these limited to offering a maximum prize of only £2,000. Following the liberal recommendations in the Budd Report (DCMS, 2001), the Government introduced an only slightly less radical Gambling Bill into Parliament in 2003. This proposed that unlimited prize electronic gaming machines (EGMs) would be permitted in a new generation of 'regional', 'large' and 'small' casinos. 'Regional' casinos would have no limit on the number of devices and could offer multiple styles of gambling such as bingo and betting; 'large' casinos, defined by a minimum square footage designed to encourage their location in town centres rather than residential neighbourhoods, would also have no restraints on the number of machines; 'small' casinos were defined by a minimum space requirement and the number of machines was limited by a maximum ratio of machines to table games on offer. At this stage no limit on the number of new casinos was envisioned: the market would decide. Commentators expected several regional resort-style casinos to be built, with a network of perhaps 200 'large' venues providing more local facilities.

In the event, fierce opposition from lobbyists acting on behalf of existing gaming interests and anti-gambling organisations forced a substantial dilution of the proposals by the time the Bill became an Act in April, 2005. Only seventeen new casino licences are now authorised to be issued, one for a regional casino and eight each in the large and small categories. Further, only the single regional casino will be permitted to offer the largest pay-out (Category A) machines. This is unlikely to be the final outcome, however, since a future review of the law is proposed in light of experience of the new style casinos. Debate on the merits of providing destination resort casinos and EGMs in casinos serving more local markets is therefore ongoing in Britain. Australia offers an equivalent to 'regional' casinos in thirteen casinos spread across the country. Further, most states permit casino-style EGMs in designated areas of 'hotels' (pubs and bars) and clubs and these often provide 100-200 machines. Such venues are roughly equivalent to the 'large' casinos in the British legislation. Crucially for our purpose, separate data are available for turnover, player losses, etc in these two sectors, labelled 'casinos and 'EGMs' in the data set available to us. Australia therefore offers the possibility of analysing the impact of both super-casinos (access to which will necessarily involve significant travel for most of the population) and a network of more local machine gaming venues. The close relevance of the Australian experience to proposals for Britain has been recognised in the debate on the link between machine gaming and problem gambling [START_REF] Dodgson | Regional casinos and problem gambling[END_REF]) but here we exploit it to inform the question of whether either super-casinos or a network of local EGM venues draw expenditure from state on-line lotteries.

The question is of some general interest. It is clear that in a world of budget constraints the introduction of a new product will necessarily lead to resources being diverted from the purchase of other products. Thus, as the portfolio of gambling products expands, it is interesting to ask whether the displacement comes from within the gambling sector or from elsewhere. The cannibalisation of existing products by new forms of gambling would limit the extent to which product innovation would lead to growth of gambling in total. The alternative is that product innovation here shifts resources from other sectors of the economy. So it may be the case that the observed product innovation is a result of players quickly becoming bored of games and needing constant stimulation in order that the sector can retain its revenue positions; or such innovations may be leading to actual growth of total gambling activity through external displacement effects.

Background and literature review.

In order to place the empirical analysis in context we will begin by providing a brief outline of the gaming sector in Australia. For a full review of gambling in Australia, see the comprehensive report by the Australian Productivity Commission (1999). We will then proceed to review the existing literature on displacement effects within betting and gaming markets.

The Australian gaming sector.

Australians lost AU$14b (about AU$1,000 per person) in gambling activities in 2000 [START_REF] Blanks | The Productivity Commission's Inquiry: three years on[END_REF] accounting for more than 1.5% of GDP. Annually 80% of Australians participate in gambling products and allocate 3.5% of their household disposable income to these activities. Lotteries have been in operation since the early 1900's and are the most popular gambling activity, with 60% of the adult population playing.

Bookmaking was legalised in the 1940s when the Totalisator Agency Boards were established in most states and these are now being privatized. The 1970s and 1980s saw the introduction of new lottery games and the opening of Australia's first 'casinos' 1 .

There are now 13 casinos in Australia. In several states, the 1990s saw the legalisation of 'poker machines' (EGMs); prior to this they had been available only in New South Wales (NSW).

Lotteries have a long history in Australia with the first non-profit lottery being run in Queensland in 1916 to raise revenue for war programmes. The success of such lotteries resulted in the state taking over their operation and other states introducing their own lotteries. By the 1930s lotteries and minor gaming such as charity raffles and bingo were legalised throughout Australia. There are many types of lotteries but Lotto has been the market leader in recent years. Lotto is also the most popular lottery game played around the world. Players must select a set of numbers from a choice of a larger set (without replacement) with the winning numbers being drawn randomly by the lottery operators. For example, in the basic 6/49 game, players pick six numbers from 49. It is important that these two parameters are selected carefully as they determine the probability of winning and this should be set at a level proportionate to the population size. Hence games vary across Australian states in accordance with population differences. Both government and commercial operators run Lotto games. Lotto, and 1 In many jurisdictions, the term 'casino' is used to describe any location the main function of which is the provision of machine or table gaming. However, in Australia it is reserved for large Las Vegas-style venues and not used when referring to even large machine gaming rooms in hotels and clubs. 6 similar games such as Powerball, are operated both at the state level and in terms of multi-state games. Oz-lotto (drawn every Tuesday) is the national game and Saturday night lotto is operated by the Australia Lotto Bloc which includes all states (though New South Wales joined only in 2000, having previously provided a state specific game on Saturdays). Instant lotteries (or scratch cards) are also available. These are cards which players purchase and then scratch off panels to reveal whether or not they have won. They are usually priced from AU$1-10. The prizes tend to be relatively small but the probability of winning is typically better than that of other lottery products.

Scratchcard data are available separately from sales figures for lotto and other on-line games.

'Poker machines' or EGMs have a long tradition in NSW (they were introduced to clubs in the 1930s) but were a more recent introduction to other states in the 1990s.

Approximately 20% of the world's EGMs are located in Australia. There are currently around 185,000 in operation and half of these are located in NSW. They can be found in clubs and hotels2 and the venues that house them generate substantial revenue from the machines. There is a large amount of policy debate in Australian regarding the issue of gaming machines. The rapid growth of this sector of the industry has caused some concern. The machines in each club and sometimes across clubs are linked to a central jackpot. Studies of gaming machine players in Victorian Casinos show that expenditures increase as the jackpot reaches its upper limit. These venues typically also offer the facilities to play keno (which is also available in casinos). In keno the odds of winning and the prizes vary according to how many numbers are chosen and matched.

Casinos have been a more recent introduction to the gaming sector with growth throughout the 1970's and 1980's-Tasmania and the Northern Territory were the first to legalise them and there is now at least one in each state (but only 13 in total exist across the country). Casinos offer a range of games, some dependent on luck and some with varying degrees of skill associated with the outcome. Payouts vary by game and are highly regulated. Due to the relatively small number of casinos in operation their

Literature Review

There have been a number of attempts to assess cannibalisation within the gambling sector (for a review, see [START_REF] Paton | The demand for gambling[END_REF]). Here we focus on studies that include examination of the impact of casino gaming on lotteries. Evidence is predominantly American. [START_REF] Anderson | Riverboat gaming: an analysis of future odds[END_REF] reported a negative relationship between state lottery revenue and riverboat gambling in six states. [START_REF] Anders | An economic analysis of substitution between Arizona Indian casinos and the state lottery[END_REF] and [START_REF] Siegel | The impact of Indian casinos on state lotteries: a case study of Arizona[END_REF] focused on the impact of Indian gaming on lottery revenue in Arizona. They estimate that a 10% increase in the number of slot machines 3 in casinos located on reservations is associated with a 3.7% decline in lotto sales and thus partially accept the operator's argument that declining lottery sales can be blamed on the spread of Indian gaming. However, they caution that such a finding may not be generalisable across states, noting for example that [START_REF] Steinnes | Have Indian casinos diminished other gambling in Minnesota?[END_REF] had found smaller impacts for Minnesota.

Recent contributions have attempted to gain more general insight by applying fixed effects analysis to annual data from panels of states. [START_REF] Elliott | Has riverboat gambling reduced state lottery revenue?[END_REF] and [START_REF] Fink | The importance of self-selection in casino cannibalization of state lotteries[END_REF] found strong displacement effects on lottery revenue from riverboat and commercial (i.e. non Tribal) casino sectors respectively. For example, Fink and Rork estimated that if casino games take an extra $5 from consumers, lottery turnover declines by $1.60. By contrast, [START_REF] Walker | A panel-data study of the relationships among gambling industries[END_REF] reported that in a lottery demand equation, casino revenue attracted a significant positive coefficient, implying that increases in casino gaming actually raise lottery sales, a contrast with other research findings in the US and possibly explained by a failure to account for endogeneity issues.

From the perspective of potential to inform policy formation in other countries, we are sceptical over the usefulness of the findings from studies such as these since they average out impacts over states with very different styles of casino in very different locations. For example, in addition to Indian gaming, the rapid expansion of the US casino sector from the 1990s (documented in [START_REF] Eadington | The economics of casino gambling[END_REF]) took the form of openings of riverboats, racinos (at racetracks), destination resort casinos (such as at Biloxi), and facilities both in large cities (e.g. Detroit) and in depressed towns relatively remote from major population centres (e.g. former mining communities in Colorado).

Thus, across states, there is great variety in the style of casino gaming offered. Different patterns of provision may have different effects which are masked by an overall average. For example, if casinos are in remote locations, visits by most individuals may be infrequent and, to the extent these visits boost the desire to gamble, other gambling media will benefit between times; but if casinos are very accessible, their net effect may be to draw funds that would otherwise be allocated to other accessible gambling opportunities like lottery tickets. Policy makers require to know what effects will follow from licencing specific types of casino. Knowledge of the relationship between an 'average' system of casinos and other modes of gambling is less valuable. In this respect, a panel data study for Australia has more potential than one for America because the data distinguish expenditure in regional super-casinos (which have territorial monopolies for their style of product offering) and expenditure in machines located in the community in venues comparable with what the British legislation terms 'large' casinos.

In this paper we will look in the Australian data for evidence of any displacement of lotto spending by EGMs. We control for displacement from other (non-gambling) leisure and entertainment activities4 .

Data

Data on gaming were provided by the Tasmanian Gaming Commission (2003), which, by agreement between the states, was (until recently) responsible for maintaining and to per capita values to account for population differences across states.

An important aspect for identification of displacement effects in our statistical modelling is the fact that there has been variation across states and through time in the types of gaming activities offered and hence Table 1 shows the dates at which the different products have been introduced to the gaming market (although a complete set of dates for all forms of gaming in all states is not available). Whilst the date for the introduction of lotto is unknown in a number of states, it was in operation for the duration of the data used in this exercise (hence we have a balanced panel).

Interestingly, in Western Australia (WA) we can see that EGMs are illegal but casinos are not. That is, poker machines are allowed in very large, but not in smaller, facilities.

The fact that EGMs have always been illegal outside 'casinos' (i.e. hotels and clubs do not offer machine gaming) in WA makes it an interesting 'control' state for this analysis.

The variable to be modelled is lotto turnover and Figure 1 shows the real per capita lotto turnover by state for the period considered in our data. Simply eyeballing the data, we can see that lotto sales in WA (the only state where EGMs are illegal) have seen the greatest growth over the period. NSW, which has the greatest number of EGMs, has seen stable lotto turnover; however gaming machines were introduced there long before our data begin. Victoria seems to have seen a fall in lotto turnover in the 1990s corresponding to the introduction of EGMs, but the opposite is true for the Northern Territory. However, it is difficult to extract information from this kind of univariate analysis and hence the next section will discuss the multivariate framework that will be employed to investigate potential displacement effects.

Statistical framework

Our data consist of yearly time series for each state and therefore represent a simple panel dataset. We want to consider the impact on lotto turnover of alternative forms of gaming and hence lotto turnover is our dependent variable. Since lotto has existed in all states for the time period under consideration, the panel is balanced. It is highly likely that there are important state characteristics to which lotto turnover is related. Indeed, turnover from the gambling industry varies immensely by state, suggesting important differences in either the social acceptability of gambling or the level of state regulation and control (which in a democracy ought to reflect the tastes of the majority of the population, albeit with the possibility of time lags) or some combination of these influences. To allow for these effects we will estimate a fixed effect model. Given that our interest is in the displacement effect on lotto from the introduction of alternative forms of gaming, it G consists of: other lotteries, instants, casinos, minor gaming (e.g. bingo), keno (a machine game with a structure similar to that of lotto) and EGMs. it X consists of a mixture of variables. Unemployment is included (to try to capture aspects of the business cycle that might impact on lottery play) along with a time trend. Expenditure on tobacco and alcohol is added as a proxy for the prevalence of permissive attitudes in a state [START_REF] Forrest | Participation and level of play in the UK National Lottery: characteristics of lotto players and correlation with spending on other 'vices[END_REF] show for UK households that there is strong positive correlation between expenditure on alcohol, tobacco and each of six types of gambling including lotto). Finally, spending in cafes/restaurants and hotels is included to capture potential displacement effects from the broader leisure and entertainment sector, as suggested by previous literature. It is not possible explicitly to Accounts include gambling expenditure itself in this category and therefore it would be endogenous within our model. Including 'cafes/restaurants and hotels' is one solution.

it it it it it v X G S lottoT + + + + = 3 2 1 0 β β β β (1)
Potentially, however, it also is not without problems. EGMs are found in many (although not all) hotels and so there may be a high degree of correlation between expenditure in this category and expenditure on EGMs even though the figure for cafes/ restaurants and hotels excludes EGM revenue (the cafes/ restaurants and hotels category picks up mainly food and snack expenditure). A quick look at the correlation coefficient between these two groups shows, however, that there appears not to be a problem (the correlation is 0.0335) and so both categories of expenditure were included in the model.

The inclusion of dummy variables to capture the impact of the introduction of new gaming opportunities is rather crude in that it does not allow for the fact that the long run effect maybe different from the initial impact. It is, however, possible to measure the displacement effects more precisely given that we know the turnover from alternative gaming activities. Therefore the above model is rerun where it G now represents the turnover from each form of gambling. This allows us to measure the average displacement effects over time. However, this specification raises a potential endogeneity problem. Turnover for each of the alternative gaming opportunities is potentially endogenous.

Given that consumers simultaneously decide how to allocate their expenditure across gaming activities, turnover of keno, say, is likely to be endogenous to lotto turnover,

that is 0 ) , cov( ≠ it it v G
. However, we do have a potential instrument for turnover in each of the alternative gaming activities and this is the corresponding expenditure. Note that turnover is the amount bet regardless of the amount returned as winnings. For example, in the case of EGMs, turnover is the total amount paid into the machines, unadjusted for the amount that is returned as winnings. Expenditure, however, is the amount spent after winnings have been accounted for.

Turnover and expenditure differ in the gambling industry due to player losses but they are obviously highly correlated, which satisfies one criterion for a good instrument. 12 However it would be inappropriate to use expenditure as an instrument for turnover unless price (take-out) were exogenous. For most gambling media this is the case as the take-out rate it is set by a regulator or by legislation and is also a function of the tax imposed on the gaming activity. In the case of Australia, the taxation of gambling is a combination of federal and states taxes, adding interesting exogenous variation in expenditure relative to turnover across states. The average national gambling taxation in 1999-00 was AU$275 per capita. However, it was much higher in Victoria with a per capita tax of AU$385. Gambling taxes in 1999-00 were AU$4.4 billion, 2.2% of total taxation. Table 2 shows the breakdown of EGM prices and taxes by state as an example of the variation that is observed. For full tables revealing the full taxation differentials by gaming product across states, see Chapter 13, Productivity Commission (1999). It is clear that expenditure therefore differs from turnover due to exogenous variation in regulation and taxation and is therefore a suitable instrument for turnover.

It should also be noted that using a two-tail Pearson Correlation test, correlation was found between EGM expenditure and EGMs turnover at the 1% level of significance and no correlation was found between EGM expenditure and the error term in equation ( 1). This is also true for all the other gaming expenditure variables. We are, therefore, as content as one may be that they are suitable instruments for turnover. The final model is therefore estimated by two stage least squares (2SLS).

Results

The three specifications estimated are: first, a dummy variables specification that concentrates on the impact at the point of introduction of alternative gaming activities and assumes this to be constant from that point on; second, a specification that replaces the dummy variables with the respective level of turnover for the alternative forms of gaming; and finally, we perform an instrumental variable estimation, using expenditure to instrument turnover. The results are presented in Table3. The first thing to note is the relative performance of the three models. It is clear in terms of 2 R criteria that the dummy variables specification fits the data well; however, for reasons discussed below, we feel this model is misspecified. As we move from the turnover model to the final instrumental variables (IV) model, we see that the goodness of fit improves. The IV fits The dummy variable estimates of the displacement effects report a very different story from the IV estimates. This is perhaps not too surprising as they are capturing different effects. The dummy variables are constructed to be zero until a gaming product is introduced and one thereafter. This assumes that the effect at the point of introduction is constant from that point forward in time. However this may not be the case. The initial impact in the first year say following the launch of a new gaming activity may be very different from the long term impact, say 10 years later. Removing the dummy variables and replacing them with the annual turnover for new gaming activities will capture these potential changes through time. The resultant estimate in this case tells us about the average displacement effects of new gaming activities.

One can see that the displacement effects from lotteries and minor gaming lose significance in the IV model and this is perhaps explained by the fact that they are the most likely endogenous gaming activities. The impact of EGMs is not picked up in the dummy variable specification but is significant in the other models. This is not surprising as EGMs exist in multiple small venues and these will have taken time to develop -so the growth of EGMs and any resultant impact on lotto is likely to occur gradually. Instant scratch cards, produced by the state lottery organisations, are not significant in any of the models: instants appear to grow the lottery market rather than cannibalise the on-line games. The IV results suggest that, in the case of other forms of gaming, there are negative displacement effects on lotto from the introduction of keno (which is significant in all specifications) and EGMs -with the quantitative effects from keno (-0.286) being larger than that from EGMs (-0.016). For 'casinos', however, the sign of the estimated coefficient is positive (+0.017) in the IV specification. This suggests, as in [START_REF] Walker | A panel-data study of the relationships among gambling industries[END_REF] US study, that growth in casino gaming reinforces growth in lotto sales. Such results are possible because a new product may cannibalise existing products (positive displacement) or promote them by spreading or deepening the taste for gambling as a generic activity (negative displacement). We find that turnover in Australian 'casinos' (which will include table and machine games) boosts rather than curtails sales of lotto and lotto-style products. Presumably this is because trips to these regional casinos advertise the idea of gambling to participants; but, for most people, access to a casino is not available on a weekly or daily basis, so that, after their trip, it is not an option to replace the regular purchase of lottery tickets with regular gaming in the casino. By contrast, increases in EGM turnover are shown by our results to be at the expense of lotto sales. Such cannibalisation is unsurprising.

Putting money in machines or spending it at the lottery booth are clear alternatives because the EGM category refers to machines in hotels and clubs, in what outside Australia would be termed local casinos. At this level, machines and lotto tickets are clear alternatives: each is readily accessible and (given linking of machines5 ) each offers the possibility of a very substantial win.

Tobacco and alcohol expenditure were also included as a means of capturing differences in the degree of permissive attitudes across states and time and are found to have interesting coefficient estimates. In terms of our preferred IV model, that on tobacco expenditure is found to be negative and that on alcohol expenditure is found to be positive. These findings are therefore inconclusive if we view them as proxies for permissive attitudes to the group of products known as 'vices', and are even more confusing if we consider the locations in which they are sold. Tobacco is sold in retail outlets that are also allowed to sell lotto tickets and alcohol is sold at venues that are not licensed to sell lotto tickets. In this perspective, the results are contradictory to a priori expectations. Australia has a strong antismoking lobby and the negative coefficient on the smoking variable might be picking up a cultural shift away from smoking in general.

Expenditure shares on tobacco have been declining steadily throughout this time period across all states6 . In terms of the wider leisure industry, we find a positive impact on expenditure in cafes, restaurants and hotels only in the case of the dummy variable specification. The state fixed effects vary across the specification but make most sense in the context of the IV model. Here we find significant effects for New South Wales and Victoria, the two states which are known to be the most liberal in terms of gambling legislation. This suggests that the fixed effects, rather than the drinking and smoking variables, may be picking up the degree of permissiveness across states.

As regards the business cycle (looking at the IV model) we find no significant effect on lotto sales from the rate of unemployment or from disposable income; but there is a positive and significant time trend. Whilst the existing literature talks of lottery fatigue and a tendency for sales to fall through time, one should remember that lotto here refers to the total turnover from all on-line games and over the period under examination significant changes in the lotto market have occurred such as the establishment of the two large multi-state lotto games. This may explain the positive time trend in lotto turnover. One way to disentangle these effects would be to introduce into the model dummy variables which switch to one when the each state joined the multi-state games.

The problem with this approach is that, given the nature of a multi-state game, most of the dummy variables will switch to one at the same time. Moreover, the analysis above has already shown the potential misspecification that arises through the inclusion of this type of dummy variable. In this case it is not possible to replace the dummy variables with the respective turnover as turnover for lotto is the dependent variable in the model.

We therefore have allowed all of these effects to be absorbed by a time trend.

Conclusions

The literature on the relationship between different forms of gambling has often focused on 'substitution' and 'complementarity' between products. Often, however, these terms are misapplied because, following standard usage in economics, they should be reserved for referring to the issue of whether cross-price elasticities are positive or negative, not to the quite separate question of whether the introduction and spread of a new gambling medium cannibalises sales from existing media. Here, we have focused on the latter question. Our case study has been of whether sales of lotto and lotto-style products in Australia were displaced by the introduction and growth of large casinos and by the spread of casino-style machine gaming within neighbourhood hotels (pubs) and clubs. Opposite results were found in the two cases.

The emergence of the thirteen (super-) casinos appeared to reinforce the lotto market whereas machines in the network of local gaming venues diverted money away from lotto.

The results are of relevance to the policy debate in Great Britain where modern EGMs are to be permitted for the first time. Those forming the central product of a new 'regional' (super-) casino will pose no threat to National Lottery sales, according to indications from Australia. If there is only one regional casino in the country, which there will be for the time being, it will, even more so than for the thirteen in Australia, be remote from most of the population and the destination only for infrequent visits.

Expenditure there is unlikely to displace weekly or twice-weekly lottery play.

  -economic diversity across Australia create the necessary 'ripples'

  less debate relative to the rapid proliferation of EGMs in smaller local venues.

  gambling data for Australia. We use 20 years of data (financial year 1982/83-2001/02) from the eight Australian states and territories. Other variables have been added to the model from the Australian Bureau of Statistics (ABS) Time Series Statistics Plus dataset. This contains data from approximately 20,000 published and unpublished series from over fifty ABS Main Economic Indicators and related publications. The data have been changed from nominal to real values using the Consumer Price Index ( with 1976 as base year) and all variables have been converted

  'recreation and culture' in the model as the Australian National

  and is our preferred specification both on theoretical and empirical grounds. It is nevertheless interesting to compare the three sets of estimates.

Figure 1 :

 1 Figure 1: Real per capita lotto turnover by state ($m), 1982/83 -2001/02

  per capita sales than in South Australia but our estimate of the proportionate drop in lotto sales from introducing machines in Tasmania is of a similar order of magnitude (20.0%).Local gaming venues in Australia, accessible and with 100-200 high prize machines, are just like those implied by the UK legislation authorising 'large' casinos. The original proposals in the Gambling Bill placed no limit on the number of these 'casinos in the community'. The severe restriction on their number by late variation of the terms of the new legislation represents a fortunate escape for the lottery and perhaps other gambling interests. But the process of reform may not yet have run its course. Our findings are relevant to an ongoing public debate. David Forrest was supported in this research by a Fellowship from the Leverhulme Trust. We are also grateful to Martin Pierce for preliminary data investigations and to David Davies, Department of Justice, Victoria, for helpful information regarding gambling regulation and legislation within Australia.

	F o r
	P
	e
	It would seem more likely that it would divert expenditure away from alternative tourist e r
	destinations for day or weekend trips (although this hypothesis has not been tested in this paper). By contrast, Australian evidence suggests a potential for local casinos (of which there R e v
	are now in Britain to be only eight new 'large' and eight new 'small') to divert i e significant sums from lotto and the causes it funds. An illustration of the possible size of impact may be obtained by extrapolating the regression results to suggest how much w
	bigger lotto sales would be in the absence of EGMs in individual states. Consider, for
	example, South Australia, where EGMs in local venues were legalised in 1994. By
	2002, per capita turnover for these machines had reached AU$4,503 (player losses
	AU$523). Per capita lotto turnover was AU$181: with the displacement effect we have
	estimated, lotto sales would be predicted to have been AU$72 higher in the absence of
	EGM expenditure, i.e. the lotto market appeared to be 28.4% lower in 2002 than it
	would have been without the introduction of EGMs. To take another example,
	Tasmania permitted EGMs from 1996. Both lotto and gaming machines attract lower

Acknowledgements:

Table 1 :

 1 The Legalisation of Gaming Activities across Australian States.

	Lotteries	Lotto	Instants	Casinos Keno	EGM's

Table 2 :

 2 EGM's prices and taxes, 1997/98 Australian Government (sub. D284, P.19) Reproduced from Productivity Commission (1999) "Australia's Gambling Industries" Report No 10, AusInfo, Canberra.

	1997/98 Turnover ($m) Expenditure ($m) Tax ($m) Player return Av tax rate Price per dollar Original Source: Page 22 of 23 NSW VIC QLD SA TAS ACT NT 30540 18098 4058 3292 207 1249 232 2989 1711 601 395 24 127 20 690 707 180 161 10 28 10 90.2% 90.5% 85.2% 88.0% 88.4% 89.8% 91.4% 23% 41% 30% 41% 42% 22% 50% 10c 9c 15c 11c 11c 10c 9c

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript F o r P e e r R e v i e w

Table 3 :

 3 Modelling Displacement Effects for Lotto Turnover -1982/83 to 2001/02. Note * indicates real per capita values. The omitted state is the Northern Territory

		Model 1-Dummy Variables	Model 2-Turnover Variables	Model 3-Instrumental
		Estimation			Estimation			Variables Estimation
		Co-	Standard	|t|	Co-	Standard	|t|	Co-	Standard	|t|
	Variable	efficient	Error	statistic	efficient	Error	statistic	efficient	Error	statistic
	Lottery	-7.689	(2.290)	3.36	-0.808	(0.317)	2.54	-0.368	(0.407)	0.91
	Instants	3.575	(4.897)	0.73	-0.244	(0.147)	1.67	-0.117	(0.156)	0.75
	Casino	0.828	(1.908)	0.43	0.000	(0.003)	0.10	0.017	(0.008)	2.02
	Minor gaming	6.154	(1.570)	3.92	0.259	(0.080)	3.23	0.082	(0.101)	0.82
	Keno	-4.941	(1.972)	2.51	-0.182	(0.077)	2.37	-0.286	(0.087)	3.30
	EGM's	0.626	(2.103)	0.30	-0.011	(0.003)	4.30	-0.016	(0.003)	4.87
	Disposable income*	-0.007	(0.003)	2.54	-0.005	(0.002)	2.18	-0.003	(0.003)	1.33
	Tobacco expenditure*	-0.118	(0.062)	1.89	-0.091	(0.062)	1.46	-0.161	(0.068)	2.38
	Alcohol expenditure*	0.217	(0.052)	4.15	0.154	(0.044)	3.47	0.103	(0.049)	2.12
	Cafe/restaurants/hotels expenditure*	-0.039	(0.013)	3.02	-0.017	(0.012)	1.38	0.008	(0.016)	0.53
	unemployment rate	-0.035	(0.014)	2.43	-0.019	(0.013)	1.42	-0.012	(0.014)	0.84
	NSW	-9.253	(5.494)	1.68	3.175	(5.734)	0.55	17.542	(8.566)	2.05
	VIC	13.978	(5.405)	2.59	13.763	(5.494)	2.51	27.991	(8.424)	3.32
	QU	-9.748	(4.604)	2.12	-7.846	(4.823)	1.63	1.801	(6.633)	0.27
	SA	-10.089	(4.496)	2.24	-8.125	(5.287)	1.54	10.590	(9.315)	1.14
	WA	-4.928	(4.793)	1.03	-1.087	(5.148)	0.21	9.450	(7.465)	1.27
	TAS	-4.075	(4.159)	0.98	-6.327	(4.836)	1.31	8.003	(7.312)	1.09
	ACT	-0.910	(9.669)	0.09	5.672	(8.716)	0.65	16.700	(11.131)	1.50
	Time trend	1.131	(0.369)	3.06	1.668	(0.285)	5.86	1.741	(0.295)	5.90
	Constant	75.224	(13.080)	5.75	54.703	(14.392)	3.8	30.594	(17.620)	1.74
	R squared	0.984			0.760			0.788
	Adjusted R squared	0.986			0.728			0.760

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

In Australia bars and pubs are referred to as hotels and clubs are community based non-profit organisations.

Tribes are not obliged to file turnover and other financial data and the number of slots therefore had to serve as a proxy for dollar expenditure on slots.

For Missouri,Siegel and Anders (1999), using county-level data, found that expansion of riverboat gaming was associated with decline in consumer expenditure on other forms of entertainment.

Linking of machines within venues is permitted in Victoria, NSW, Queensland, Australian Capital Territory (ACT) and Northern Territory. Externally linked machines operate in NSW, Queensland and ACT.

We have estimated the model excluding the expenditure variables (tobacco, alcohol and café/restaurant/hotel expenditure) and the results are remarkably robust. These results are available from the authors on request. We choose to report the results with their inclusion as they suggest interesting avenues for further research.