Week 9_IT and Administrative Efficiency_Xinyu

Information Technology and Administrative Efficiency in U.S. State Governments: A Stochastic Frontier Approach

Unlike in for-profit business, where the value of IT has been studied by a large body of literature, in public sector, whether IT makes contribution to government performance is unknown. Therefore, this paper examines the relationship between IT spending and government performance. However, due to the different nature of firm and government, the performance measurements widely used in prior literature based on production function become invalid in the context of government. So this paper specifically investigates whether IT investment is associated with cost efficiency of state governments.

To measure the dependent variable, cost efficiency, the paper employs a stochastic frontier analysis with cost function. This method derives a cost frontier, which describes a minimum level of inputs, given certain amounts of outputs. After that, the cost efficiency is regressed respectively on two IT spending measurements with a two-year lag in a fixed-effect regression model, along with multiple control variables. Furthermore, the paper tests three moderators on the efficiency returns to IT spending. Those three moderators represent contextual effects from economic aspect, demographic aspect, and political aspect.

The results indicate IT spending is positively and significantly associated with government cost efficiency. This main conclusion is consistent through robustness checks. The paper mentions that, numerically, one dollar IT spending will lead to 1.13 dollar cost saving, on average. In addition, three moderating effects are all verified, indicating that the efficiency return to IT spending will be impacted by some environmental factors.