5. Conclusions
Both the concepts of efficiency and effectiveness are often used in the literature dealing with efficiency. I have tried to make the distinction between these concepts operational by using the terms outputs and outcomes based on the consideration of the degree of control a public service producer has over its production activity. The apparatus of production theory works best when dealing with resources transformed into service outputs under the control of the organisation in question. Outcomes in this paper represent some higher social goals than outputs and are determined by the outputs and other exogenous variables, but these latter and the outcome production processes will typically be outside the direct control of the organisation.
The relationship between outcomes and outputs and variables not under the control of the service provider, is cast within a framework based on Frisch's scheme of factorially determined multi-output production with outputs and non-discretionary variables as inputs. In order to be able to measure effectiveness in the choice of outputs, i.e., calculate a measure of output mix efficiency; we must have some kind of evaluation of the outcomes. Introducing a preference function over outcomes optimality conditions for providing an effective output mix for a given resource budget are derived. It is shown that the measure for overall preference effectiveness can be multiplicatively decomposed into an output-oriented efficiency of realising a frontier technology for the transformation of resources to outputs, and the output mix effi- ciency of reallocating the use of resources so the optimal mix of outputs is produced. The decomposition highlights that output efficiency and outcome effectiveness cannot be solved as separate problems as done in the literature, but must be handled simultaneously. Furthermore, the output efficiency term in the decomposition of preference effectiveness is not in general equal to the Farrell output-oriented efficiency measure.
