Identifying interactions between size effects in New South Wales local government

Size effects such as economies of scale and economies of scope can be utilised to achieve cost savings in local government systems. Numerous municipal reform policies in Australia and elsewhere have historically been premised on size effects. In this paper, we investigate whether an interaction effect exists between scale economies and scope economies in New South Wales local government using a 2011 sample of local councils. We estimate the effects of scale and specialisation on efficiency by way of a multiple regression, using a novel approach to measure specialisation. We find empirical evidence that indicates economies of scale and economies of scope are both likely to be present across a broad range of scales. However, we find no evidence of any interaction effect between scale and scope economies.