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ABSTRACT Many welfare reforms undertaken in Organization of Economic Cooperation and Development (OECD) countries are directed toward enhancing efficiency in the administration and implementation of social security. In this perspective, reforms in The Netherlands are an example of decentralization through budgeting financial means to municipalities. By using data envelopment analysis, we assess the effect of the introduction of the new Work and Social Assistance Act (WSA) in 2004 on cost efficiency. By applying a stochastic frontier analysis, we assess the impact of municipal policy strategies on cost inefficiency for the period 2005–2007. We find a clear positive effect of the WSA in 2004 on cost efficiency. Pursuing a strategy of activation raised efficiency significantly.