A performance analysis tries to establish what public institutions do and how well they do it

Before we can discuss the question of how well public institutions perform, we have to be certain what decision makers in these institutions are trying to achieve. The prime task of a performance analysis is therefore the establish­ment of the objectives of the public institution analysed; this task is difficult because, as we have seen, these objectives are typically left vague.

The point of departure for the analysis is the supposition that public insti­tutions are efficiently operated in the Pareto sense. This supposition does not contradict Olson’s assumption that public institutions are plagued by techni­cal inefficiency. The supposition only implies that, given the objectives pursued, the mode of operation of that institution is not improvable because no better alternative is known that can readily be implemented. It follows from this central supposition that we can analyse the structure of a public institution in order to derive the objectives to be pursued therewith. Hence the first part of the performance analysis involves an analysis of the structure of the institu­tion whose performance is to be researched.

Structure analysis

The central question to be answered with a structure analysis is this: which objectives can be efficiently realized given the prevailing structure of the institution or, alternatively, assignment of property rights? The analysis pro­ceeds in four steps:

1. Who controls inputs and monitors input performance?

2. Who controls outputs and monitors output performance?

3. Who monitors the production process?

4. Who monitors the composition of the team of producers?

Since in a public institution the principle of residual clemency applies, not with respect to net profits, but with respect to (political) discretion, the assignment of property rights to particular actors whose interests can be established reveals the objectives of the institution.

Analysing the revealed performance of an institution

While the structure analysis is exclusively devoted to establishing which objectives are to be reached, the analysis of the revealed performance yields insights about both aspects of the question; the revealed performance serves either to question or to corroborate the objectives established in the structure analysis; and it also offers hints as to what performance standards the actors in the institution wish to see applied themselves. The analysis proceeds in six steps:

5a. sample and define the objectives revealed in documents and pronounce­ments by authorized actors of the institution studied;

5b. sample and define the objectives found in non-authorized documents and pronouncements;

5c. compare the objectives established in steps (a) and (b) with those estab­lished by means of the structure analysis;

5d. compose a list of objectives differentiated as follows:

d1. objectives established by both types of analyses,

d2. objectives established by means of the structure analysis,

d3. objectives established by means of the revealed performance analy­sis.

The complete list will be used for the following steps:

6. document the range of objectives;

7. document the extent to which these objectives have been achieved;

8. document the depth and continuity of achievement;

9. estimate the public enterprise rent and assess the achievement of the aforementioned objectives in terms of range, extent, depth and conti­nuity against the public enterprise rent: that is, the profit forgone;

10. (optional) sketch a workable scenario of the privatization of all the activities leading to the full range of objectives established.

Analysis of the interplay between the institutions’ own approach to account for its performance and the reactions of its principals to that account

The relative weights to be assigned to the different objectives can be derived from an analysis of the interplay between the efforts of the institution ana­lysed to account for its performance and the reactions or non-reactions of the principals. The analysis again proceeds in five steps:

11. analyse the appointments to supervisory and management boards;

12. account for explicit policy changes and shifts in objectives between different institutions. Shifts will reveal a relative dissatisfaction with the performance of the institution which has to relinquish a particular task while at the same time expressing relative satisfaction with the performance of that institution which receives that assignment;

13. establish implicit policy changes and shifts not publicly discussed or documented;

14. establish discrepancies between language and behaviour in order to document ceremonial performance;

15. establish the range of activities not discussed at all but continued.

These activities can be safely assumed to be uncontroversial between prin­cipal and agent.

Summarizing the performance assessments in terms of inputs and outputs Once, in the manner established, a full account of the performance of the institution has been given, a summary discussion should reveal the cost of achieving this range of objectives in terms of the public enterprise rent.