Relative allocation questions come into play. Production efficiency is improved if resources are reallocated within expenditure categories to get the most output from whatever resources are available. There are three important dimensions to assessing production efficiency. Second, structural changes associated with likely production efficiency changes should be detailed. Third, local capabilities to provide services should be assessed.
Allocative efficiency matches public spending with consumer preferences.
Allocative efficiency changes as resources are reallocated between expenditure categories to better match the needs of local constituencies. There are three dimensions that we recommend for evaluation. First, there must be some means for local officials to detect what local demand is. Normally this involves some form of democratic government, though other arrangements may work too. Third, local government decision-maker should be accountable to their constituents.