Scale Economies and Police Department Consolidation Evidence from Los Angeles

I. INTRODUCTION The cost structure of government production is an important policy issue given the possible cost savings that local governments can achieve by consolidating the provision of public goods. Gyimah-Brempong (1987, 1989a) suggests that such consolidation would be an inefficient move by local governments. The research indicates that police output is produced under decreasing returns to scale, inferring that jurisdictions should consolidate to produce police services only if the respective constituencies' preference for consolidation justifies the increased cost. A preference for consolidation would not likely explain the degree of intergovernmental sharing found within Los Angeles County. While an estimated 6% of U.S. cities consolidate in some manner to produce police services (Renner, 1988), over 45% of Los Angeles jurisdictions provide police service through intergovernmental agreement. More significantly, over 90% of Los Angeles jurisdictions that have incorporated since 1954 engage in such intergovernmental arrangements (39 out of 43). The disproportionate amount of police consolidation in Los Angeles County raises the question of whether such governmental sharing may be, at least within the region, economically efficient. This paper examines this question by estimating the cost structure of Los Angeles area police departments. In Los Angeles, many municipalities contract with the county sheriff's department for police services. Mehay (1979, 1985), Kirlin (1973), and Shoup and Mehay (1972) explore the impetus for the contractual arrangements. Mehay (1979) finds that production of police output in the contractual cities is less than that of cities with independent departments - sometimes substantially less. The study suggests that whatever cost savings that may arise from the arrangements originate from the relatively low police output produced through the agreements. This could not serve as a motive for consolidation. Mehay (1985) and Kirlin (1973) suggest that market incentives generated by the contractual arrangements may increase the efficiency with which contract providers produce police services. Shoup and Mehay (1972) imply that the municipal governments are motivated to contract with the county because the county subsidizes them. However, no empirical study has tested the hypothesis that suburban Los Angeles jurisdictions disproportionately consolidate because the average cost for an individual department producing police services in the area falls as its output grows. TABLE 1 Summary Statistics for Dependent and Independent Variables Variable Mean Standard Deviation Police Expenditure 15350233 20972377 Arrests 6356 9357 Crime Rate 0.0658 0.0195 Police Salary 50310 5608 Civilian Salary 29655 5044 Capital Price 15330 215 Police Share 0.50 0.0972 Civilian Share 0.12 0.0342 Capital Share 0.38 0.0883 Population 96474 98718 Poverty Rate 0.1411 0.0634 % Homeownership 0.4736 0.1148 Testing for scale economies is complicated by the fact that one can define police output in a number of ways. Empirical studies use such intermediate output definitions as arrests (Gyimah-Brempong, 1987, 1989b), clearances (Darrough and Heineke, 1979), and clearance rate (Chapman et al., 1975) while defining final output measures as some transformation of the crime rate (Gyimah-Brempong, 1989a; Phillips and Votey, 1972; Craig, 1987). Varying definitions may be the reason why these studies produce disparate results on the empirical question of police scale economies. This study tests for scale economies using two separate output definitions: the intermediate good of arrests and the inverse of the crime rate (sometimes referred to in the literature as "safety"). …