Measuring allocative efficiency in cultural economics: The case of Fundación Princesa de Asturias

Literature on Cultural Economics gives us some examples about how to measure technical efficiency. But, to the best of our knowledge, there is a lack in the case of allocative efficiency analysis. The aim of this paper is to fill this gap incorporating to Cultural Economics a methodology that analyzes both technical and allocative efficiency. Concretely, we use a Shepard’s distance function which is particularly suitable when we face non-for profit firms or institutions that are not interested in cost minimization. This is the case of our empirical application, consisting in analyzing the efficiency in the performance of Fundación Princesa de Asturias (PAF), a Spanish nongovernmental organization devoted to promote cultural, scientific and humanistic values of universal heritage, during the period 1988-2012. Our findings suggest that PAF could have use 7% less inputs to achieve the same level of outputs. On the other hand, there is no allocative efficiency. Other expenditures input has been over-utilized related both to labor and current assets inputs, and labor has been over-utilized related to current assets. Moreover, results indicate that both technical and allocative efficiency haveclearlyimproved during the analyzed period especially in the last years of the period. Beyond the limits and restrictions imposed by our data availability, our empirical application aims to show how distance function methodology can be successfully implemented to measure allocative efficiency in the case of cultural firms and institutions.