The Korea Local Administration Review

The paper aims at deriving the optimal population size of local governmentsfor efficient public service provision. At the optimal population size of localgovernments, the marginal benefits and the marginal costs of local publicexpenditure must coincide as the local population changes. However, it isimpossible to convert the theoretical optimal size to an empirical model toprovide the actual number. To overcome the impossibility, we develop atechnique of a segmented regression by modifying the maximum likelihoodmethod. It is based on an observation that per capita costs of local publicservice provision decrease rapidly to a specific size and then the costs remaina constant level. Because the technique reflects the benefits and the costs oflocal public expenditure, the derived optimal size will be smaller than theminimum efficient population size where the scale of economy to populationonly considers. The optimal size of si, derived from 10 year period databetween 2003 and 2012, is about 244 thousand and that of gun is about 90thousand. These are much smaller than the minimum efficient population size of658 thousand for si and 140 thousand for gun. Conclusively, efficiency of localpublic expenditure should be included as an objective for the reform of localadministrative system and the optimal sizes which the paper presents can beused as a criterion for consolidation of local jurisdictions.
□ Keywords: consolidation of local jurisdictions, optimal population size, segmentedregression, maximum likelihood method