Institutional efficiency and budget constraints: a Directional Distance Function approach to lead a key policy reform

This manuscript focuses on the Italian judicial system and on how to shape a policy reform aimed at increasing court efficiency, taking the financial negative externalities generated by this production process into account. On the one hand, the authors identify the benchmarks and main drivers of judicial inefficiency, while, on the other hand, they show how incorrect model definition may mislead policy makers tackling this reform process, based on an analysis of the Directional Distance Function with and without bad outputs. According to the results, incorrect model definition causes a type I error equal to 10.37% and a type II error equal to 3.66%. Policy implications concern the opportunity to adopt the proposed model and the collected benchmarks to reform the judicial system, improving its technical efficiency and maintaining the public budget under control.