A complete FDH efficiency analysis of a diffused production network: the case of the Italian driver and vehicle agency

In a multiple input–output setting, we offer an example of a full-blown efficiency analysis based on the free disposal hull assumption of a non-convex technology. On a cross section of 92 units, for the time period 2006–2007, we measure technical and allocative efficiency, cost efficiency, as well as returns to scale and technical progress. Furthermore, by introducing a new cost-efficiency measure that is corrected for differences in the scale of operations (average cost efficiency), we are able to obtain an estimate of cost reductions ensuing from network restructuring based on optimal scale sizes. A detailed regional analysis of results is presented. Differences in efficiency scores, ascertained across space and time, are assessed by means of non-parametric inference testing. The input ratio is found not to be statistically correlated with cost-efficiency scores. Local provision of public services at a provincial level results in a considerable amount of average cost inefficiency.